Bi-Weekly Private Credit Digest – February 2023

Private Credit Market Updates: Illimity Bank, October Lending, Tranch, and Goldman Sachs

The private credit market is constantly evolving, with new players emerging and established firms growing their positions in various countries. In this episode of the Bi-Weekly Digest, we highlight some of the latest news from Europe and the US.

Italian Landscape

Italian digital bank Illimity Bank has carried out a securitization of performing credits valued at 530 million euros. The securitization is made up of 82 loans issued by the bank itself to SMEs and mid-cap segments. The loans are guaranteed by Fondo Centrale di Garanzia and by SACE, with the ABS issued by the SPV entirely subscribed by Illimity Bank. What makes this transaction unique is that the SACE Guarantees have been transferred together with the assets. Illimity Bank’s growing position in the Italian Securitization Market is demonstrated by several other deals, such as the 450 million euros securitization on non-performing loans and the 40 million euros multi-originator securitization closed in October 2022.

France’s SME Lending developments

The French private debt market has also seen interesting updates. SME Lending Platform October secured 35 million euros in funding from the European Investment Fund and the Dutch impact investor – Invest-NL. The investment regards the debt fund “SME V,” which aims to grant more than three thousand loans to small enterprises all over Europe, mainly addressing borrowers at the lower end of the market and offering investors attractive returns. What is interesting about SME V is that it is the first October’s Fund that is labeled as promoting environmental and social characteristics, and complies with the Article 8 of the SFDR, hence it will be subject to strict disclosure requirements.

UK and BNPL

In the UK, Tranch has raised $100m of new funding to expand its BNPL (buy now pay later) services in the US Market. The UK Fintech, born in late 2021, is a buy now pay later platform that enables SaaS companies to give their customers 3 to 12-month flexible payment terms and get paid upfront for invoices that range from $5 to 250k. The demand for such BNPL services can only increase, since they allow companies to optimize their working capital cycle. However, it is also crucial for fintech to offer this kind of services to strengthen their ability to assess the creditworthiness of their customers, as well as to improve the collection strategies. Credit losses and bad loans are the main enemies of BNPL fintech profits.

European Securitization Market Results

The 2022 results of the European Securitization Market show a 12% decline in volumes issued compared to 2021. According to the Association of Financial Market in Europe data, the 203€ million volumes issued in 2022 are concerning. The retention rate, which is the amount of securitization the originators are not able to place and, therefore, keep in their balance sheet, spiked from 46% in 2021 to 61% in 2022. This is the worst result since 2015, indicating that the current crisis is having a significant impact on the European Securitization Market.

US Market

Lastly, in mid-January, Goldman Sachs Mezzanine Partners VIII Fund closed on $11.7 billion of equity. Such a fund will continue its focus on the direct origination of junior fixed-income investments in private equity-backed businesses. Despite Goldman Sachs team’s expertise in mezzanine financing investment strategies, investors’ increasing focus on income generation and capital preservation poses a major challenge for the US Investment Bank given the current global high-interest rate and high inflation environment.

In conclusion, the private credit market is constantly evolving, with new players and innovative solutions emerging every day.

From Italy to France, the UK, and the US, the latest news from the industry highlights a growing focus on social and environmental responsibility, increased demand for BNPL services, and the challenges of the current economic climate.

As we move forward, it will be interesting to see how these trends continue to shape the market and the broader financial landscape.