European Credit Opportunities

Mid-market, sponsorless borrowers: an untapped opportunity set

A combination of structural and cyclical factors is producing a compelling opportunity for investors who are looking to enhance portfolio diversification and earn meaningful investment returns. The demand for capital from Europe’s SME sector is greater than ever before.

May 10, 2023

6 minutes

Christophe Rust
Lei Lei

A gap in the market

There is a growing need for private credit in the underdeveloped European market, where banks continue to retreat from lending and mid-sized firms seek flexible financing solutions.

“The tightening of financial conditions as a result of the Global Financial Crisis and the subsequent sovereign debt crisis in the euro area led to severe difficulties for SMEs in accessing finance. The outbreak of the pandemic has given rise to new, more severe and immediate challenges for SMEs in terms of their access to financing.”
ECB Economic Bulletin, Issue 4/2020.

The ongoing retrenchment of European banks is contributing to an estimated €400 billion1 funding gap in the European SME market. Meanwhile, the cyclical backdrop of slowing economic growth and rising inflation pressure is driving up the demand for finance across the corporate sector. Many SMEs require flexible financing for expansion and other activities. This creates a gap in the market for investors who can provide bespoke capital solutions to performing mid-market ‘sponsorless’ borrowers.2

Click here to read the full paper

1 Source: Euler Hermes, April 2019.
2 The term ‘sponsorless’ refers to borrowers owned by entrepreneurs, families and shareholders other than private equity funds.

Authored by

Christophe Rust
Lei Lei

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