Debt Finance Series: Special Situation And Direct Lending Funds Set To Deploy

• Published date: 14 October 2020
• Subject Matter: Finance and Banking, Insolvency/Bankruptcy/Re-structuring, Debt Capital Markets, Financial Services, Financial Restructuring, Insolvency/Bankruptcy
• Law Firm: Ocorian
• Author: Mr Alan Booth

Managing Director, Alan Booth continues his dive into the debt markets, highlighting the activity of special situation and direct lending funds as they react to market uncertainty.

Read part one: Issuance activity continues to rise

At Ocorian we work very closely with a diverse range of fund managers, who are adept at spotting opportunities and have accelerated the level of fundraising within pre-existing special situations funds and new ones coming to the market. From this perspective the appetite, particularly among US and to a lesser extent European and UK fund managers, to take a sizeable position on distressed debt is becoming a key theme for Q4 and will be a theme throughout 2021.

We look to service our clients at the portfolio level and facilitate our clients with structures, from fund creation and work-out scenarios, through to investment holding, staff incentivisation and on to exit. At the moment, there is a strong focus on fundraising, looking at corporate targets in default, and there is a lot of capital ready to deploy and starting to be deployed, not necessarily just on distressed assets, but on corporates that continue to be a going concern but which are currently under-priced due to market conditions.

The sectors in the spotlight right now are really any relating to supply chains around the automotive, airline and retail industries. Then there's also the Brexit play alongside COVID-19, which makes UK target acquisitions that little bit more attractive. So, we will certainly see that deployment continue. We are seeing government and central bank support coming to an end, while there is pressure on traditional bank lenders to go easy and not trigger loan defaults. As that government support is withdrawn in Q4 and bank lenders roll back on their support, certainly in the UK we will see the need for special situations funds to be deployed.

Direct lending funds look to deploy locally

What we are seeing in the Asian market is particularly interesting and will have an effect on inward investment to Europe and the US in the short to medium term. There is now $850 billion globally in private credit...