Deal flow held through the rate shock

Through the fastest rate-tightening cycle since the 1980s, European private-debt deal flow held, and then some. Deloitte’s tracker counted 871 trailing-twelve-month deals in its Autumn 2022 edition, up 51% on a year earlier and close to double the 2020 trough. The tracker itself was renamed “Private Debt Deal Tracker” in that same edition, an institutional acknowledgement that the asset class had ceased to be alternative and become structural.

What happened in the market most people were watching?

The public debt markets had a difficult year. Sterling leveraged loans repriced sharply through 2022, the mini-budget of September wiped a further slice of sentiment, and new issuance in the leveraged-loan and high-yield bond markets became episodic. For a company trying to finance an acquisition or a refinancing, the syndicated route, always more reliable in calmer conditions, narrowed materially in the second half of the year.

The gap this opened in the mid-market was not theoretical. Direct lenders closed it. Unlike a syndicated deal, which requires a clearing market and a group of banks to underwrite distribution risk, a direct-lending transaction closes bilaterally: one fund, one credit committee, one term sheet. That structural difference in execution is why private-debt volume kept running while the public markets stuttered.

The chart above shows the full trajectory from the Covid trough. The Spring 2021 reading of 385 trailing deals was the low point of the post-pandemic pause; by Autumn 2022 the count had more than doubled to 871. The direction of travel through the rate shock is the story: the line did not pause in 2022. It accelerated.

Did European unitranche volumes corroborate the picture?

Yes. Houlihan Lokey’s MidCapMonitor, the most closely followed count of pan-European mid-cap unitranche and senior LBO financings, published quarterly data through Q3 2022 that told a consistent story. After a seasonal Q1 dip to 104 transactions, European unitranche rebounded to 130 in Q2 and held at 129 in Q3. That is within a few per cent of the Q4 2021 peak of 139. Three consecutive quarters into the rate shock, unitranche volumes had not meaningfully broken. The record FY2021 pace (486 European transactions for the full year) was being tracked closely.

The Q3 2022 edition of the MidCapMonitor restated the Q2 figure upward from 130 to 135 as additional deals were captured; the chart uses the figure as first reported.

What did the structure mix tell us?

The unitranche remained the dominant deal structure in the UK through every point in the 2022 cycle. On Deloitte’s tracker, the UK unitranche share of all private-debt deal structures ran between 58% and 70% across the six editions from Spring 2020 to Autumn 2022, peaking in the record-run Autumn 2021 edition and normalising to 58% by Autumn 2022. In the same period, the European average was running 10 to 14 percentage points lower.

The pattern matters for a lower-mid-market borrower for a specific reason. Unitranche dominance in the UK is partly a size story: the single-tranche structure is proportionally more efficient at smaller deal sizes, where the mechanical overhead of assembling a senior-plus-mezzanine structure is harder to justify. Unitranche share persisted through 2022 even as rates rose and lenders might have been expected to de-risk into simpler senior structures. That is evidence lenders remained willing to offer single-tranche flexibility to the right credits at the smaller end of the market.

What does “certainty of execution” actually mean for a CFO?

It is a phrase that appears in every pitch deck from a direct lender, and in 2022 it acquired data behind it. When the syndicated markets effectively shut for several months in the back half of the year, a company with a time-sensitive transaction (an acquisition with a long-stop date, or a covenant being tested) had two realistic routes: wait for the public market to reopen, or close bilaterally with a direct lender. Many chose the latter. They paid more on the margin. They got the deal done.

The corollary is the one worth internalising now, before conditions tighten further. A CFO who only engages private-debt lenders when the bank says no, or when the syndicated market is closed, arrives late and negotiates from weakness. The borrowers who used 2022 well were those who already had relationships across the direct-lending field and could move to a bilateral close in weeks rather than months. Building that map is ordinary treasury preparation, done before the pressure arrives.