by Michael Hanley , Catherine Jane O'Rourke December-06-2019 in Banking & Financial Services


In our previous text on the Irish Lending Landscape we highlighted that in the wake of the recession, Ireland saw the emergence of a new wave of funding from alternative sources to the traditional banks. This change was driven by a liquidity gap caused by the exit of some and other financial institutions being wound down. The Central Bank of Ireland (“CBI”) imposed a tighter regulatory regime on the traditional banks and consequentially the qualifying criteria for borrowers to obtain credit became more onerous. Irish businesses were seeking alternative sources of finance and a number of direct lenders entered the Irish market in response to this need/opportunity.

We observed that while the entry of these new participants plugged a gap, traditional bank lending was still responsible for approximately 90% of Irish lending. The diversification supplemented and complimented traditional bank lending in the areas of development finance, property investment finance and mid-market/SME trading/acquisition finance.  Another evolution that occurred arising from the recession was that larger indigenous PLCs migrated towards international banking providers to handle their global banking arrangements. This resulted in the Corporate Banking units in the Irish based Banks re-focusing on vibrant growing mid-market companies.


18 Months On – Where Are We Now?

As is often the case after a period of expansion, growth slowed in 2018 in the alternative lending market across Europe. However, the alternative lending market remained in a growth phase with a 9% increase in deal flow year-on-year and with a pan European split of 24.5% to 75.6% of non-bank to bank funding1. In Ireland, the market share remains at similar levels to 2018 with a 90% to 10% split between traditional banks and non-bank funders.

This begs the question, have things moved on? The answer is yes, in that several hundred million euro has now been lent in Ireland by direct lenders in what is overall a buoyant lending arena. The traditional banks are actively lending on transactions that fit within the parameters of their credit approval processes while complying with capital maintenance rules. This is evidenced by the recent CBI statistical release on 19 November 2019 showing continued growth in the number of short to medium term loans (up to five years) issued to Irish resident companies.  Direct funders are serving as an alternative solution for borrowers on projects or ventures that may not secure traditional bank funding or have characteristics which are more suitable for non-bank funding. We have seen this both in the area of real estate finance and finance to trading companies for capital expenditure/ acquisition finance.

This is good news for Irish mid-tier and growing SMEs allowing them access to a more dynamic debt landscape with increased lending options and blended solutions. Many companies now in the mid-tier and growing SME space are structured with different layers of equity and often a combination of senior and junior debt making up their ‘capital stack’. This demonstrates a greater level of structuring sophistication than would have been the case pre-recession and more akin to the approach taken by larger corporates in the Irish market - albeit from a debt perspective this is more likely to be on a syndicated rather than a bi-lateral basis.  Another welcome evolution is a movement away from insistence on full recourse personal guarantees. The provision of personal guarantees would be an unusual requirement on similar transactions in the UK or other European countries.


Key Players

We referenced a number of direct funder participants in our earlier piece, the majority of which are still actively operating in the Irish market. To bring matters up to date, firstly in the construction finance space, Avenue Capital recently acquired a stake in Castlehaven Property and is looking to lend €500 million year on year for the next four years. Other participants in the construction finance space are Activate Capital and Beacon Capital who operate more as an arranger of or conduit to sources of private or institutional funding.

Property investment direct funding is probably the most competitive area with continued high levels of activity from notable participants including Timbercreek Ireland Private DAC, Bolt Capital, and Cardinal Capital (who also often partner senior providers as a mezzanine funder), Santiago Capital (who in its first year of operation deployed €32 million of funding on investment and select construction finance projects), Sancus Finance Ireland and Capital Flow. There are also a number of family office and private funding sources in this space. In the area of funding to trading mid-tier companies and SMEs, Dunport Capital Management is an active participant (Elm Capital Credit DAC (managed by Dunport) raised €283 million in funding last year).  Others in this space include Beachpoint Capital and Bain Capital Credit.


12 Month Outlook – Are Direct Lenders Here To Stay?

With the increase in competitors, the question of ‘where to next?’ arises - does the market have sufficient depth to support this influx of funding participants? While currently there are strong levels of activity, particularly in the context of property and acquisition finance, the opportunity cost in Ireland is higher than elsewhere, creating a constant search for yield.

Therefore, it is likely we can expect that some entrants to the direct lender market will exit the market. We may see some consolidation and possibly even consideration given to applying for a banking licence as a competitor to the high street banks.

In terms of Brexit, there are significant challenges which lie ahead for many Hayes clients and we will endeavour to assist in navigating these uncharted waters. From a lending perspective, Brexit could have a material impact on deal flow and availability of funding depending on the outcome and ramifications of those negotiations. We may see more British or London based direct funders (for example Sancus) establishing in Dublin and/or on a larger scale, relocations of the European headquarters, as with Barclays. However, this is all dependent on the outcome of the UK election and subsequent engagement with the EU. 



The Irish debt landscape is currently in a state of rude health with direct lenders continuing to supplement active traditional bank lending in the Irish market. This is good news for SME borrowers, as the result is a more dynamic and flexible lending landscape. However we cannot ignore the potential impact Brexit or other macro events, such as adjustments to corporation tax, could have on the broader economy which is inextricably linked to the availability of funding.

For further information, please contact Michael Hanley or Catherine Jane O'Rourke at Hayes solicitors. 


1 Deloitte Alternative Lender Tracker Spring 2019

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