Direct Lending in CEE/SEE

09 April 2018 | schoenherr publications

Access the full content of the direct lending guide here.

Direct Lending on the Rise.

The global financial crisis of 2008/09 resulted in a shortage of available finance for a wide range of borrowers. Not only were banks forced to deleverage their balance sheets, but more stringent capital adequacy requirement rules also led to a downturn in bank lending volumes. This urged the need for a new source of liquidity resulting in the emerging of direct lending funds as a key source of loan finance.

What was sparked by the global financial crisis a decade ago and evolved in the US over ensuing regulatory pressures is taking over the European markets and, as is often the case with financial innovation, is also gradually moving into CEE and SEE. According to Preqin, an alternative assets industry data and intelligence source, assets under management at Europe-focused funds increased from a mere USD330 m at the end of 2006 to USD73.3 bln by mid-2017, including USD27.9 bln of “dry powder”, or funds yet to be lent out. In 2017 alone 24 direct lending funds raised a record $22.2 bln. Such funds provide unitranche financing as an alternative to traditional banking for mid-market companies (and buy-outs) where borrowers are provided with senior and junior debt combined in one tranche bearing a blended interest rate. This offers borrowers many benefits including, among others, more flexible terms and covenant-lite features.

Despite EU-plans to harmonise the direct-lending market, understanding the current local legal framework and peculiarities is critical to successfully executing a lending transaction by unregulated lenders. We have therefore developed this basic – but practical – guide to assist market participants in familiarising themselves with the relevant legal issues when considering direct lending in the CEE/SEE region. Our direct lending guide offers insights into the key legal aspects for direct lending in Austria, Bulgaria, Bosnia & Herzegovina, Croatia, the Czech Republic, Hungary, Macedonia, Moldova, Poland, Romania, Serbia, Slovakia and Slovenia. Interactive maps compare local frameworks, presenting similarities and highlighting local peculiarities, while country chapters in the form of Q&A’s provide more detailed information.