European debt funds have equitized a file degree of loans to non-public equity-backed firms however most are struggling to exit these investments, new analysis has discovered.

Debtwire evaluation confirmed that since 2018, European credit score funds have totally or partially equitized at the very least 61 loans supplied to non-public equity-backed firms.

Nevertheless, of these 61 offers, solely 5 have been totally realized, leaving debt funds with 56 fairness positions on their books at a time when exits are at a three-year low.

Learn extra: State of misery: Particular report on distressed debt

A debt-for-equity swap is a refinancing deal by which the debt holder will get an fairness place in change for the cancellation of the debt. These offers are usually achieved to assist a troubled firm proceed to function.

Goldman Sachs, KKR and CVC Credit score are among the many credit score behemoths which have participated in debt-for-equity swaps since 2018.

Final yr noticed a surge in exercise, with at the very least 23 transactions happening, Debtwire discovered.

Learn extra: Moody’s: Personal credit score returns may fall this yr

“For contributors in Europe’s non-public credit score market, 2023 marked a record-setting yr regardless of a dismal local weather for M&A – the lifeblood of direct lending,” stated John Bringardner, head of Debtwire.

“Within the background, elevated rates of interest lifted non-public credit score’s returns above non-public equities for the primary time ever.

“Personal credit score proponents tout its potential to supply versatile options for debtors, however when company misery strikes, direct lenders nonetheless typically find yourself taking on the enterprise. As loans issued throughout the ‘golden age of personal credit score’ start to mature, we anticipate to see extra various asset managers swapping their debt for fairness – and on the lookout for methods to exit these investments.”

 The vast majority of equitized transactions concerned the non-public credit score arms of asset managers, Debtwire discovered, whereas a minority have been carried out by their CLO funds.

Learn extra: Personal debt diversifies from direct lending

Most equitized loans have been supplied to non-public equity-backed firms, with only some non-sponsor-backed transactions recorded.

Shopper-related offers made up greater than a 3rd of the offers, with the industrials, enterprise companies, healthcare, and TMT sectors collectively accounting for the remaining majority of debt-for-equity swaps.