Episode 23

Episode 23: Three direct lending questions for Christine

Steve sits down with Christine Vanden Beukel, Managing Director of Crescent Credit Europe LLP and Head of European Credit Markets, ESG Strategy and Policy Development at Crescent Capital, to discuss direct lending markets in the UK and Europe.

Steve Peacher: Hi everybody, thanks for dialing into this episode of Three and Five, and I'm Steve Peacher, President of SLC Management, I'm really pleased today to be joined by Christine Vanden Beukel, who runs Crescent’s Direct Lending business in London, the UK and Europe and I'm happy to be actually with her as we record this so Christine, thank you for taking a few minutes. 

Christine Vanden Beukel: Thanks for coming to visit us here Steve. 

Steve Peacher: So, we want to talk today about the direct lending markets in the UK and Europe. Crescent has had a very similar strategy in the US we've talked about that in the past episode, I believe, what are the differences between the direct lending markets in the US versus what you see in the UK and Europe.

Christine Vanden Beukel: I agree there are a lot of similarities, however I would also point out certain key differences. First of all, club deals are a lot more prevalent in the US, Europe tends to be a more winner takes all origination exercise, and what that means is that we are typically the only lender in the capital structure and most of our deals have two institutional investors, the private equity owner and ourselves, and that makes it quite different. Secondly, advisors are much more an important part on the origination ecosystem, not just M&A advisors but also debt advisors. A lot of people have a perception that means it’s much more intermediated market, but in reality what they’re doing is simply almost acting like an outsourced capital markets function for the mid-market PE funds, so just simply acts in a different way, but that does increase the challenges in terms of our origination because we have to cover not only PE sponsors but also advisors. And then finally, perhaps stating the obvious, European private debt as a shorthand for lending to something like 15 different jurisdictions, all of which have different legal construct and different cultures, this makes it much more challenging but in some ways, more interesting. 

Steve Peacher: Right, well as I found when we talked to your team today, people speak a lot of different languages. What if you look at the market today, what are the key trends that are prevalent?

Christine Vanden Beukel: I would mention two things, one is like the rest of the world, people are much more focused on sustainability, and the challenge with private debt is how to interpret that when you don't necessarily own these companies, so it's much more about engagement and influence when it comes to private debt, so, I would say we're sort of in an experimental phase in that regard. Secondly, European banks are still active in the mid market that's another difference for the US, that is slowly changing, but the recent pandemic has really accelerated that trend, so private debt continues to gain market share from the banks and, in particular, I would say we've noticed this this past year from markets, such as Germany and Netherlands and the Nordic region.  

Steve Peacher: So, let me pick up on the sustainability theme, it's the hot topic across all markets as you noted, you're very involved in Crescent in the ESG efforts here, what do you see within the European private debt market specifically as it relates to ESG?

Christine Vanden Beukel: Well, first of all European LPs which are really our core base for our European products are probably the most demanding LPs in the world when it comes to asking their managers to show ESC commitment, for example, we have a lot of Dutch and German investors in our fund and they're incredibly demanding in terms of both information and wanting to see real commitment from their managers. The second is that the regulation on ESG disclosure and moving towards a net zero commitment I would say that the government's are really very demanding here in Europe, and that is filtering down to what we have to do. So, for example, it sounds quite technical but there's new regulation coming in Europe, which requires us to attempt to gather and disclose quite detailed information, particularly on things like carbon emissions and pay disparity, even from our middle market companies, so that engagement and how to solve that information gathering exercise is a challenge that we're facing at the moment. The other very interesting development in private debt market is, people are probably familiar with the high yield market having sustainability linked KPI coupons, so that if someone, let's say makes strides with carbon emissions, they get to pay less in terms of their coupon, we actually see that in our own market and private debt. So, quite a few private debt issuances today have features, where you might have 30 basis points or 50 basis points swing factor depending on how the company performs against say three different key performance indicators such as carbon or diversity of the management team, or perhaps something very specific to that company.

Steve Peacher: And the Europeans definitely led on this issue, so I think all these trends, to set they're not already in North America are going to be there soon. So that was great. Let me ask you a different question on the kind of a personal question unrelated directly to some of these, but I know that you love to ride horses and so as an equestrian are there is there anything about riding a horse and getting better and better at it, that are there any attributes there that relate to investing money or running investment teams?

Christine Vanden Beukel: You might stump me with this one, Steve. I think that it's going to sound trite, but a lot of people think of horses is potentially just a piece of equipment. But in reality, their another creature and you have to approach it as a partnership so, you know you have to sort of work together in order to be successful, you can’t just simply give a horse, you know, an order, you have to develop a relationship in order to perform at its best, so I would say there's probably a good analogy there somewhere for all of our businesses is my is my guess. 

Steve Peacher: Well, the analogy isn’t your teammates are horses but that you have to operate together in partnership, so I get that. 

Well, this has been great, and this, we've done, I think 16 or so of these, and this, the first one got a person, so this has been fun, for me, so thank you for taking the time and thanks to everyone who's listened in to the session of Three and Five.

Steve Peacher: Thank you, Steve.

This podcast is intended for institutional investors. The information in this podcast is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained in this podcast. This podcast may present materials or statements which reflect expectations or forecasts of future events. Such forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. As such, do not place undue reliance upon such forward-looking statements. All opinions and commentary are subject to change without notice and are provided in good faith without legal responsibility.