Business Irish

Monday 19 August 2019

Firms have many new market options to fund corporate debt

Irish companies are being courted by domestic and international institutions eager to lend

Window of opportunity: Traditional banks are still important but corporate borrowers have more options
Window of opportunity: Traditional banks are still important but corporate borrowers have more options

David Lyons

One of the positive legacies of the post-crash economy in Ireland is that domestic businesses are seeing a transformation in the market for corporate debt.

Until relatively recently, the corporate debt market in Ireland was dominated almost exclusively by traditional banks.

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Companies who were looking to borrow funds to support growth had a limited number of options when it came to who they might be able to borrow from.

There were very few direct or speciality lenders in the Irish market who could create bespoke solutions for local companies.

That situation has been completely upended.

The Irish banks continue to be an important source of debt for companies, but as new direct lenders have entered the market, corporate borrowers have options never previously available.

Terms have become much more flexible and innovative. This sea-change is following global trends. In the United States, it is estimated that direct lenders currently have advanced loans of around $700bn (€630bn).

In the last year, credit managers BlueBay, Ares and Alcentra each have raised funds in excess of $5bn for their respective European direct lending platforms.

The attractiveness of one of Europe's fastest growing economies, and the search for reasonable returns during a period of historically low interest rates, have meant that Irish companies - both new and established - are being courted by a wide range of domestic and international institutions eager to lend.

Key players in the corporate debt market include international players such as Proventus, Bain Capital and Muzinich and Irish firm Dunport Capital Management.

The Ireland Strategic Investment Fund (Isif) has played a key role, too, in attracting direct lenders to Ireland by providing capital to domestic and international players such as Dunport Capital, Beechbrook Capital and Muzinich to support lending to Irish businesses.

This represents a really positive development for businesses here.

With this increased new competition, interest rates for corporate debt are more competitive than they have ever been before.

The new lenders also are introducing greater flexibility for the length of loan terms and the debt multiples at which companies can borrow (relative to their earnings).

In many cases, debt now challenges equity as a key option for businesses looking to finance management buy-outs, future growth and acquisitions.

Some of the new debt providers allow for lower levels of scheduled capital repayments for businesses which are forecasting particularly solid earnings.

This in turn allows for companies to use excess cash for growth initiatives rather than on debt reduction.

This flexible debt option, however, does carry the risks associated with higher leverage.

It must be seen as a calculated risk that many management teams in high-growth businesses are willing to take.

Not surprisingly, Irish companies are reaping the benefits of increased competition and are responding enthusiastically to these developments. Larger companies are conducting tender processes to explore the different packages which lenders are willing to offer them.

Advisers, such as ourselves in IBI Corporate Finance, frequently are appointed to help ensure that the most attractive terms are secured.

Increasingly, management teams that previously would have had to consider selling equity to fund future growth now have the option of holding on to that precious asset and fund growth from borrowings instead.

What these direct lenders have introduced into the Irish market is a diversity of lending that was not previously available to businesses.

That diversity and optionality is here to stay, and more Irish companies are using it as a means to accelerate growth plans.

David Lyons is a director and head of debt advisory with IBI Corporate Finance

Irish Independent

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