Pérez-Llorca and SANNE analyse direct lending in the COVID-19 era

Pérez-Llorca and SANNE organised a webinar to analyse direct lending in the COVID-19 era, its trajectory over the course of 2020 and the outlook for 2021. The virtual meeting was moderated by Manuel Rodríguez, SANNE’s Country Head of Spain. Ildefonso Arenas, Pérez-Llorca’s Banking and Finance partner, Pedro Manen de Solà–Morales, Marlborough Partners’ Managing Director and Head of Iberia, and Leticia Ruenes, Pemberton Asset Management’s Head of Spain all took part in the seminar.

After Manuel Rodríguez opened the session, Ildefonso Arenas began his presentation by discussing, from a practical standpoint, the legal effects and consequences that COVID-19 has had on financing transactions. Specifically, he explained how long-term financing is coexisting with ICO lines, as well as the current situation resulting from the exemption from the obligation to file for insolvency proceedings until 14 March 2021. The Pérez-Llorca partner also analysed the main legal disputes that in his experience have come up repeatedly as part of direct lending transactions, highlighting adjustments to financial aggregates and the regulation of operating system incidents, among others.

Arenas concluded his speech by explaining certain issues of special importance to the legal sector such as the impact of Brexit on legal documentation subject to English law (problems with jurisdiction), the effect of the regulatory change on interest rate setting (Libor and Euribor), and the impact of European Central Bank guidelines on leveraged transactions.

Pedro Manen de Solà–Morales then provided an overview of the direct lending market. In this regard, he explained how the “middle market” of leveraged transactions has developed in Spain in comparison with the United Kingdom and the rest of Europe, highlighting the progressive sophistication that the Spanish market has experienced over the last few years, from simple bank debt structures to complex bank debt structures and/or specialised funds and lenders. Additionally, the director analysed the impact of COVID-19 on the demand, liquidity and positioning of the leveraged financing product with respect to banks and debt funds, highlighting as an initial consequence in the first few months of 2020 a certain liquidity shock, which could be seen in the prices and the types of financing that were accessible. Manen de Solà–Morales concluded his speech by noting the exceptional improvement of available liquidity during the second part of the year following this initial shock, which could be seen in the number of players and prices, noting the current opportunity in the Spanish market with regard to debt funds, financing structures and the wide range of options in terms of capital structure for companies.

Lastly, Leticia Ruenes explained the motives behind an international fund such as Pemberton opening an office in Spain, and conducted a detailed analysis of the positioning of both Spanish and international debt funds. She stressed the importance of collaboration of funds and banks and the complementary role that funds such as Pemberton offer banks, which is particularly significant given the context of rates, banking regulation and the current difficulty of club deals. Likewise, she explained to those present the impact of bank consolidation in the credit market, where she noted, as one of the main consequences, the move towards a future in which there is potentially less bank financing in favour of greater alternative financing.

The event ended with an interesting Q&A session directed by Manuel Rodríguez.