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European Capital looks forward to a golden age(3)

European Capital has expanded its German debt team as it looks to benefit from reduced competition in the credit markets following the exit of CLOs and hedge funds.

Debt provider European Capital has boosted its team by appointing Bernd Schaessburger as an investment director of its financial services team, in anticipation of a resurgent mezzanine market.
 
The debt hybrid had been in retreat for some time as banks lent senior debt in more aggressive structures, taking advantage of the liquidity provided by hedge funds and collateralised loan obligations. The credit crunch has forced a re-pricing of risk and created an opportunity for mezzanine lenders to steal back market share.

Robert von
Finckenstein

Schaessburger becomes part of the firm’s Frankfurt based Germany team headed by managing director Robert von Finckenstein, which has been increased to four people. Another person will join the team shortly.

Bernd Schaessburger has worked in mezzanine roles at DAM Capital and before that at German bank Dresdner Kleinwort for two years at both companies. He will work on origination, structuring and execution of deals at European Capital.

The expansion team comes as European Capital is looking to step up its mezzanine activity in Germany, where its most direct rival Intermediate Capital Group has yet to set up an office.

Robert von Finckenstein, European capital managing director and head of the Frankfurt office said: “Second lien is dead and we have entered an entirely different market with 2004 to '05 prices and massive margin increases, I’ve even heard about the return of warrants. You might call this the age of mezzanine.”

According to von Finckenstein underwriting banks on typical deals in the German market of circa €300 to €400 million ($416 to $555 million) will now only provide €50 to €100 million of debt even via a consortium of three to four banks. This will force financial sponsors looking for leverage to turn to mezzanine or more potentially lucrative low risk alternatives such as warrants.

Since opening its office in Frankfurt in May European Capital has provided debt on three deals, KKR and Permira’s merger of Prosiebensat.1 with SBS Broadcasting to form a €10 billion company, Allianz Capital Partners’ acquisition of European vending machine business, Selecta from catering company Compass Group for £773 million,

Von Finckenstein said of the Prosiebensat.1 deal which was syndicated shortly before the worst problems in the debt markets surfaced: “The deal was largely oversubscribed as Permira and KKR mobilised their friends and family. There were over 100 investors in the room when the deal was done. “

Now liquidity in the debt markets has dried up, Von Finckenstein believes debt providers with large balance sheets and less leveraged business models – such as European Capital and its rival ICG – will be benefiting from the gap in the debt market left by the disappearance of CLOs and hedge funds from the debt markets.