Aether Financial Services publishes the Aether FS Unitranche France Index for the Third Quarter of 2022.

Date of the event:

The cost of Unitranche debt resumes its downward trend in the third quarter of 2022

, following an increase in the previous quarter, according to the Private Debt Benchmark Index in France, Aether FS Unitranche France.

An index down compared to the previous quarter

The Aether FS Unitranche France Index for Q3 2022 shows a decline from the second quarter, reflecting a margin level of 1.36% per leverage round for 44 tranches analyzed.

In a context where mid-market valuations are decreasing[1]

, average closing leverage follows this trend, standing at 4.50x (compared to 4.56x in Q2 2022). This aligns with the trend of the previous two quarters, marking a decrease of 0.36x compared to the same date last year, representing a 7.4% decline on a year-over-year basis.

A significant decline in M&A transactions

This index appears to be the result of a combination of market factors. Firstly, the number of M&A transactions has seen a significant decline in the first nine months of the year compared to the same period in 2021. Globally, the decrease is 34% (source: Refinitiv). In Europe, France has experienced a drop of over 30%, leading to a scarcity of opportunities for alternative lenders.

Capital reserves to be deployed

The substantial amount of dry powder available to unitranche lenders (approximately €285 billion in Europe) creates a certain pressure to invest. However, in a turbulent context, investors are increasingly seeking high-quality deals, and many unitranche lenders find themselves competing for these opportunities. Preempted opportunities are becoming increasingly rare.

According to Edouard Narboux, CEO and co-founder of Aether Financial Services, “The past quarter confirms the zone of uncertainty we are in. The Aether FS Unitranche France Index, unlike the previous quarter, is down. With the onset of inflation in early 2022 and the subsequent rise in interest rates, along with the beginning of the war in Ukraine in February, the financial environment is hardly conducive to private equity transactions. The lack of visibility on the future has already slowed the sector, with a decline in the number of deals in recent months.”

[1]

10.0x EBITDA in H1 2022 vs 11.6x in H1 2021 according to the Argos Index