Who would have thought that after a lengthy marketing process, the financial institution which could offer such a venerable sporting institution as the EFL — which comprises the three tiers of English professional club football beneath the Premier League — the best terms for emergency funding would be a US insurance company.
After all, one might think that UK banks would leap at the opportunity to increase their profile in an industry nowadays almost as famous for the amounts of money swilling around its upper echelons as for anything that happens on the pitch; or that the government would try its best to save such a culturally and socially important aspect of national life.
But it was MetLife that emerged as the EFL’s rescue lender, surpassing both government financing and other overtures from UK banks. It offered the EFL a lengthy £117.5m senior secured loan, which helps the borrower meet payroll obligations to June 30.
This is illustrative of a broader theme in the UK. Two tectonic plates are shifting underneath capital markets that could create a groundswell of other bilateral transactions.
Banks are retrenching after rampant lending through the coronavirus, several sources have said, while institutional investors are growing origination teams to break from established debt markets.
UK banks, sources say, are prepared to pass on transactions where little ancillary business is likely, focusing instead on servicing the needs of larger companies. According to a source close to the EFL deal, three out of the five major UK banks — Barclays, HSBC, Lloyds, NatWest Markets and Santander — weren’t even close to offering a package for the EFL deal. The other two teamed up but could not beat MetLife’s offer.
Portfolio managers from direct lenders, insurance companies and pension funds, are set to be the chief beneficiaries of this broader retreat. They have cash to put to work and are willing to put in the hours to make bespoke financing packages. The EFL deal is secured on the Solidarity Payments made to the EFL by the Premier League.
An established investor at one of MetLife’s largest competitors said that in the UK, his institution has never been busier. While widely marketed US private placements have frozen up, larger institutional investors have said that bilateral lending is thriving. As one investor put it: “we don’t really need the banks anymore to find deals, and we're grateful they're moving out of certain sectors. We have our own origination team and we know which companies to target.”
Corporate borrowers desire a smaller consortium of lenders as a result of the coronavirus pandemic. In the private placement market, there were instances where certain investors were tougher with companies than others, asking for additional fees for amendments and being stricter with covenants. In one instance, a company paid back roughly $1.6bn early as a consequence of the fraught negotiations. Dealing with one creditor should be simpler.
This, alongside the bank retreat and cash-rich institutions, may well herald the dawn of a new summer for bilateral lending.
As the EFL deal shows, there are institutions which can offer companies £100m-plus tickets on their own. This might become an attractive proposition for some borrowers, who are looking for greater certainty of execution, easier agreements over covenants and security and less risk of a bust-up down the line.