The 2023 trough and the rebound off it
European mid-cap unitranche deal flow hit its lowest quarter of the cycle in Q2 2023 at just 62 deals. The trough is now identifiable, and early signals point to recovery. A borrower in a quiet market commands better terms than the same borrower in a hot one.
- Dated
- 18 August 2023
- Desk note
- Dated to the data
- Reading
- 6 min
- Series
- The quarter in debt
Managing Director
The rate shock that began in 2022 found its low-water mark in the second quarter of 2023, when European mid-cap unitranche completions fell to 62 deals, the lowest quarterly count of the cycle. UK annual volumes stepped down from the 2022 high. The trough is now visible. The desk’s read is that a borrower meeting this market from a position of strength commands better terms than they would in the hot market of 2021 or the recovering market that follows.
What does a private-debt trough look like?
The 2023 slowdown was not a credit seizure. It was a repricing pause: borrowers and lenders working out where deals clear in a world where Bank Rate had moved from 0.10% to 4.5% by the second quarter of 2023, with further rises signalled. During that pause, deal counts fell and timelines stretched. But the lenders did not leave the market. They stayed open, selective and hungry for the credits that met their repriced cost of capital.
Houlihan Lokey’s MidCapMonitor captures the sharpest measure of this: European mid-cap unitranche completions quarter by quarter. Through 2022 the market was running above 100 deals per quarter. By Q2 2023 that had compressed to 62 deals, which makes the trough legible even before the full-year read is in.
The unitranche trough: 62 deals in Q2 2023, the lowest of the rate-shock cycle.
| Quarter | Unitranche deals |
|---|---|
| Q5 '21 | 139 |
| Q2 '22 | 104 |
| Q3 '22 | 130 |
| Q4 '22 | 129 |
| Q5 '22 | 88 |
| Q2 '23 | 80 |
| Q3 '23 | 62 |
| Q4 '23 | 96 |
| Q5 '23 | 105 |
- European unitranche deals (quarterly)
Pan-European mid-cap unitranche deal count, by quarter. Hard points are from Houlihan Lokey newsroom releases and HL Q4 2022 coverage confirmed by August 2023. The Q2 2023 trough (62 deals) is the last fully confirmed data point by the post date. Q3 and Q4 2023 are from reports published after this post and are shown dashed as directional signals of the emerging recovery.
Read that chart in two directions. Looking back, the compression from the 2022 pace to 62 deals in Q2 was real and sharp. Looking forward, the directional read by late summer 2023 pointed to a recovery, and early signals supported it. Fewer completions per quarter is not the same as fewer lenders willing to lend: it is fewer borrowers willing to transact at the new rate. When that number bottoms, the lenders left open are the ones competing hardest.
62
European mid-cap unitranche completions in Q2 2023: the lowest quarterly count of the rate-shock cycle, down from over 130 deals per quarter at the 2022 peak.
Source · Houlihan Lokey MidCapMonitor, Q2 2023
How far did the broader market pull back?
Unitranche is the sharpest read on the cycle because it is exclusively private credit. The broader Deloitte Private Debt Deal Tracker, which spans all structures and includes UK and European deal flow, tells a parallel story. After a 2022 high of 871 deals in the trailing twelve months, the direction of travel by mid-2023 is clearly downward, toward a level broadly consistent with the post-Covid norm before the 2021–22 boom.
Private-debt deal flow: from the 2022 peak toward the mid-2023 floor.
| Period | Deals (TTM) |
|---|---|
| '20.96 | 385 |
| '21.46 | 565 |
| '21.96 | 578 |
| '22.46 | 785 |
| '22.96 | 871 |
| '23.46 | 600 |
- Private-debt deals, trailing twelve months
Rolling trailing-twelve-month count of European private-debt deals from published Deloitte PDDT/ALDT editions. The 2021 and 2022 published anchors are hard. The 2023 trough position (~600 deals) is an illustrative estimate: the Deloitte Autumn 2023 edition confirming 600 TTM was published in October 2023, after this post. Shown to place the unitranche cycle within the broader private-debt picture.
The 2022 peak was not a sustainable run rate; it was a post-lockdown surge, funded by cheap money and pent-up M&A activity. The 2023 step-down returns the market closer to its structural level, still significantly above where it stood in 2019. More lenders exist, more capital is committed, and the asset class is broader and deeper than it was at the start of the cycle. The slowdown is cyclical; the capacity is structural.
What the UK picture looks like heading into year-end
The UK has been the single most active unitranche market in Europe through the cycle, a position it held through the downturn. The country-level deal count tracks the European pattern: a step-down from the 2022 level is expected by year-end 2023, though early recovery signals are visible by the time of writing.
UK mid-cap deal count: a step down in 2023 after two strong years.
| Year | Total transactions |
|---|---|
| FY2021 (est.) | 234 |
| FY2022 | 228 |
| FY2023 (est.) | 200 |
- FY2023 — estimated at writing; confirmed 200 in Feb 2024
- FY2021–22 (reported)
UK mid-cap total transactions (senior debt and unitranche) per full year. FY2022 (228) is hard from the Houlihan Lokey Q4 2023 deck, which restates the prior year. FY2021 (estimated 234) is directional: the Q4 2023 deck does not provide an explicit FY2021 UK total. FY2023 (200 transactions, −12% on 2022) was confirmed in the same deck published February 2024, after this post date, and is shown as a directional estimate of the expected year-end step-down.
Source · Houlihan Lokey MidCapMonitor, Q4 2023 (restating UK full-year totals for 2022 and 2023)
The FY2023 UK total (shown estimated at 200 transactions) was confirmed in the Houlihan Lokey Q4 2023 report published February 2024, which postdates this piece. The directional expectation of a 10–15% step-down on 2022 was consistent with the H1 2023 pace visible by August 2023.
The lenders still closing deals at the trough are the ones competing hardest. In a thin market the prepared borrower is not one of many in a queue; it has lenders’ attention largely to itself.
What a CFO should take from the trough
The temptation at a market trough is to wait. Deals are slower. Terms look uncertain. The instinct is to let conditions settle before committing. That instinct is usually wrong, and this market makes the case particularly clearly.
When deal flow is compressed, the lenders who remain active are deploying capital against fewer competing mandates. A borrower that brings a prepared credit story (clear EBITDA, articulated use of proceeds, a coherent leverage case) to a quiet market finds a level of lender attention and negotiating flexibility that disappears the moment activity recovers. The window is real, but it is narrow. By the time the quarterly deal count is back above 100 in the HL tracker, the competition for lender capacity will have returned.
The desk’s read of this market is straightforward: for a company with a clean credit story and a clear borrowing need, mid-2023 is a better moment to move than the conventional wisdom suggests. The rate level is real and the base cost is higher than 2021, but the margin, structure and covenant terms on a well-presented deal are negotiable in a way they are not when every lender is fielding a full pipeline.
Questions a CFO asks
Common questions
- Does a quiet market mean lenders are not lending?
- No. It means fewer borrowers are competing for their capital. The lenders still open at the trough are not rationing credit; they are competing hard for the good credits that are in the market. A company with a clean story and a live mandate finds better terms in a slow quarter than in a hot one, because it is not bidding against a queue.
- Should I wait for the market to recover before raising debt?
- Waiting for confirmation of recovery usually means waiting until the queue has already reformed. The trough is identifiable in arrears; the window of thin competition is narrower than it looks. A borrower ready to move in a slow market captures the best of both: the lenders’ attention and the beginning of improving terms.
- How does the rate environment in 2023 affect the terms I can achieve?
- Bank Rate reached 5.25% in August 2023, which sets the base for all floating-rate facilities. Margins on private-debt deals have held relatively firm through the cycle; the rate shock mainly repriced the base, not the margin. So the all-in cost is higher than 2021, but the structure and covenants can still be negotiated hard. A borrower focusing only on the headline all-in rate misses the more durable negotiating gains.