Yesterday in Madrid, a conference was held at the APD on the financing formula known as "Direct lending" or financing through investment vehicles specialised in debt without the need for a bank balance sheet.

Oquendo and HIG the benchmarks in Spain

The speakers were key decision-makers from the Spanish market leaders. Oquendo in early 2013, a new fund 100M together with the Banca March and European Investment Fund. HIG has been in the news over the past year for the purchase of portfolios of real estate assets from the SAREB.

What are the differences compared to senior or traditional debt?

Almost all speakers explained that the main difference is reflected in the flexibility in structuring. This flexibility is made concrete in the following points:

– El plazo suele mayor y en forma bulet, es decir, a amortizar al final de la vida de la deuda.
– Requiere mayor cercanía con la compañía por lo que suelen pedir un puesto en el consejo y requisitos de información financiera y de negocio mensual.
– Suelen establecer un plazo en el que no se puede devolver anticipadamente que suele estar en el entorno de 3 años.
– Ofrecen una mayor rapidez en la respuesta pudiendo llegar incluso a ser de 2-3 semanas.
– La gran cuestión que salió a debate fueron los costes asociados. La mayoría indicó unos costes por encima del 10% y estaban compuestos por una apertura, un margen sobre Euribor, un pic y un warrant.
– La deuda mezzanine es transaccional, es decir, suele ir ligada a una inversión relevante, a la compra de un competidor, etc.

"The cost of these forms of funding is directly linked to the cost of obtaining funds for these vehicles. Funders can have access to high-yield debt that may be yielding around 7%, plus a few points for higher risk-taking, plus the associated management fees, we have to be talking about above 10%" says Diego Gutierrez of Abra Invest.

Alternative or complement to traditional financing?

It is clear that this new way of funding is here to stay and grow, having to reach the same prominence as it can have in markets such as English and French. But according to Alfonso Erhardt will not have a mass effect leading to the replacement of traditional banking but will have to find ways to complement each other.