Small to mid-sized lending market dominated by operating asset financing as borrowers shift to defensive sectors, JCRA debt analysis shows

After re-sampling, which excludes the impact of the five largest financing transactions closed by JCRA in the period, the proportion of operating assets financing deals – including hotels, marinas, leisure, healthcare and student accommodation – slipped to 44%, with an increase of 22% on the previous period.

JCRA has identified a number of key trends in the UK debt markets in the 12 months to end of Q2, based on analysis of its own advised transactions which comprised 74 deals worth a combined £6.3 billion and an average ticket size of £53 million (excluding the impact of the five largest transactions).

The advisory analysis provides a window into the trends within financing markets, which are opaque relative to investment markets.

Financings of operating assets, industrial and REIT corporate facilities were the only segments to see a rise in loan volume over the previous year, says JCRA. Around 70% of the loans provided by non-traditional lenders, including international and challenger banks as well as alternative lenders, reflecting the greater credit flexibility offered by non-traditional lenders, all of which have increased their activity over the previous period.

All other asset classes saw a drop in both transaction activity and loan volume, with retail and consumer unsurprisingly seeing an 85% reduction in volume compared to the previous year, JCRA reported.

Elsewhere, JCRA reported a pick-up in acquisition and development financing picked up on the previous year, while refinancing was the primary source of transaction activity, albeit dropping to 57% of loan volume compared to the previous year, or 31% after the data was re-sampled. With 5-year swap rates sitting at their lowest level in the past three years, borrowers are finding value by locking in rates for longer terms.

Simon Marshall, Director, JCRA, says:

“We saw an overall increase in appetite for higher LTV loans over the past year, with the re-sampled data suggesting the largest increase occurred in the 70 – 75% range, when compared to the previous year. High street bank lending decreased considerably, most likely a result of a tightening credit policy, however they have remained sector agnostic. On the other hand, the re-sampled data suggests that international and challenger banks have become more competitive in the higher LTV space, and have increased their lending compared to other lenders as a result.”

Other trends included:

  • a significant increase in international bank (non-UK and non-German) lending, up 148% from the previous year, with loan volumes reaching close to 60% of total advisory mandates;
  • Challenger bank lending increased 61% in loan volume over the two periods. While the number of transactions was stable, at 14 up from 13 in the previous period, the average deal size increased from £33.8m to £50.6m;
  • German bank activity and loan volumes remained steady over the period compared to the previous period. This is most likely due to continued uncertainty over Brexit and Pfandbrief funding eligibility, JCRA says; and
  • High street bank activity dropped by 45% of total activity, with loan volumes dropping to 20% of the previous period total. Both average loan size and number of loans decreased over the period. “Although this may indicate a tightening of credit policy, high street banks remain sector agnostic, lending across all sectors covered in the sample,” explained JCRA.

james.wallace@realassetmedia.com