Bi-Weekly Private Credit Digest – January 2023

In this article series, we will walk you through the latest and most interesting news from the private credit market during January 2023. In this article, we will cover updates on sustainable development projects, securitizations of SME loans, and developments in the fintech industry.

New developments from CDP & Unicredit

Launch of the Basket Bond ESG program

First, CDP and Unicredit launched the Basket Bond ESG program to finance SME projects for sustainable development, through a first issuance of notes to the value of 48 million Euros. With this program an SPV  will subscribe SMEs Minibonds with a 6-year maturity, backing the ABS Notes issued in turn by the SPV.

What makes this program interesting is that each SME taking part in the project is committed to improving its sustainability score, assigned by the Cerved Rating Agency, with monitoring starting from the third year after the minibond issuance.

However, this is not the only green operation we have seen in the past month.

New Unicredit Portfolio Securitization 

Unicredit securitized a portfolio of consumer loans worth around 750€M with the European Investment Bank underwriting the senior and European Investment fund the Junior tranche. The liquidity generated by this transaction will be used by Unicredit to provide in the next 36 months loans, with a minimum duration of 24 months, to Italian SMEs.

The companies can use the loans to support investment projects or their working capital, but a share of at least 30% has to be invested in initiatives to improve the environmental sustainability of their business models.

This deal is part of a wider initiative focused on supporting green transactions in the Italian economy, which has led to multiple deals during 2022.  

Reaching the Green Deal’s goal will require massive investments and the financial market can play a key role in providing finance directly or facilitating banks with liquidity and capital relief. We hope that terms will become tighter soon, with no covenant holidays and 100% of proceeds dedicated to sustainable initiatives.

Other European private credit updates

Italian fintech market news

In the Italian landscape, we have seen that securitizations of SME loans backed by government guarantees are still very popular among small banks.

For example, Banca Progetto, an Italian challenger bank providing lending to small and medium businesses, brought its securitized portfolios to 1.3bn through the latest 670€M securitization, consolidating its presence on the structured finance market.

This type of transaction is very appealing for both the sell side and the buy side. On the sell side, they help banks to diversify their source of funding and increase the liquidity that can be provided to small and medium enterprises.

On the buy side, investors can get interest return with solid protection on risk, given the government guarantee. We might see these types of securitizations even more frequently in the foreseeable future considering also the increasing liquidity demand from SMEs in the difficult economic times we have ahead.

UK Fintech Landscape

In the UK, the popularity of BNPL is not slowing down. The UK fintech Curve closed a 1BN $ funding deal with Credit Suisse to scale their BNPL product “Curve Flex” across the UK, EU, and US.

Such a significant funding amount definitely signals how BNPL is an interesting asset class to invest in, given that it allows portfolio diversification and attractive returns. 

What is happening beyond Europe?

Hong Kong based alternative investment firm PAG raised Asia Pacific’s largest direct lending fund, with a value of 2.6bn from investors spread among North America, Europe, Middle East and Asia Pacific. The investment firm is expected to provide financing solutions to mid-market businesses in Japan, China, India, Australia and South Korea.

What insight can we gain from this news? Definitely, the Asian private credit market is growing at a very high speed. Private credit is in fact becoming the preferred source of deal financing in the region, especially for mid-market companies that are less served by traditional banks. Considering the low starting base, we expect significant funding increases in the future.

On more news from the market, the global alternative investment manager CVC Credit, closed its European Direct Lending Fund with 6.3€BN of capital commitment that will be deployed across European direct lending opportunities.

If we compare the capital raised by this fund to CVC’s prior European direct lending funds, it’s very interesting to note how European direct lending III has doubled (3BN€ increase), this is a clear sign of the growth that the European private credit market undertook and it is expected to have in the near future, despite the economic headwinds.

Conclusion

Overall, the private credit market is seeing a trend towards sustainable development projects and securitizations of SME loans. Additionally, the fintech industry, particularly BNPL, is growing rapidly.

Cardo AI hopes to see terms become tighter soon, with no covenant holidays and 100% of proceeds dedicated to sustainable initiatives.
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