SMEs from banks has drastically contracted by 70% since 2008! The target market is companies with enterprise values under $100 million, which is well below FTSE 350 territory. Clearly this is another group of borrowers who are forced to pay high interest rates, as they cannot go anywhere else. As well they have to make do with lower leverage and put up more collateral against the loans. On a risk- adjusted basis, Fery says, “Deals are very attractive compared with the fundamentals.”
Within the specialty fi nance segment, Chenavari is active in more diverse types of collateral involved in leasing and trade fi nance, but will generally not lend against intangible assets. In this space Chenavari sticks to Europe and Asia and tends to fi nance receivables. Chenavari also lends against onshore receivables – a strategy that effectively involves buying invoices at a discount, sometimes known as factoring, whereas trade fi nance is called forfeiting.
Up to 20% of the direct lending strategy could be allocated to developed Asia. For Chenavari the focus is on higher-income countries of Hong Kong, Singapore, Australia and New Zealand. The team is led by the one-time head of Merrill Lynch’s Principal Capital Group in Asia and Europe, Mark Devonshire, who has structured a large variety of lending deals over many years in the region. Fery himself is no stranger to Asia, having spent four years in the late ‘90s in Hong Kong running credit derivatives for SG.
The new landscape Although the big picture is deleveraging in Europe, a persistent and secular trend pre and post-crisis has been the diversifi cation of lending sources from banks and towards capital markets, and now regulatory capital and direct lending add further diversity to the mix. A generation ago bank lending was as dominant in the US as it is today in Europe, but there was a steady shift towards capital market and private equity fi nancing of the corporate and other sectors so that now more corporate funding comes from outside the banking sector. Europe may be going through a similar transition, rather later and slower, but corporate bond markets are still only around one-tenth of the size of bank assets. European bank assets still appear enormous at around three times GDP, partly because capital markets and securitization markets are correspondingly smaller, but that balance is slowly being redressed, partly due to regulations. The deals Chenavari is doing were being done pre-crisis, but it is the shortage of bank capital that makes the space more lucrative now. “The landscape of European fi nance is being transformed: that summarizes the market opportunity,” says Fery, and Chenavari is at the heart of this action. THFJ
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