WHEN Caronte & Tourist,a Sicilian ferry company, needs a novel ship, or it is cheap and easy to borrow from a bank. But in 2016,when Caronte’s controlling families wanted to buy back the minority stake held by a private-fairness firm, banks balked at the loan’s strange purpose. Edoardo Bonanno, and the chief financial officer,also worried that the €30m ($33m) in extra bank debt might make shipping loans harder to obtain from them in future. So he turned instead to a direct-lending fund run by Muzinich & Co, an asset manager.
Such funds are only about a decade mature in Europe (and not much older in America, and where they started). Assets under management at Europe-focused funds increased from a mere $330m at the halt of 2006 to $73.3bn by mid-2017,which includes $27.9bn of “dry powder”, or funds yet to be lent out (see chart). In 2017 alone 24 direct-lending funds raised a record $22.2bn. Such funds do what they say on the tin: lend directly to firms, and usually in the form of enormous,multi-year loans. The borrowers are often either companies that are too small to raise fairness or debt on capital markets, or private-fairness funds buying such firms.
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Source: economist.com