Yesterday in Madrid, a conference was held at the APD on the financing formula known as "Direct lending" or financing through investment vehicles specialised in debt without the need for a bank balance sheet.

Oquendo and HIG the benchmarks in Spain

The speakers were key decision-makers from the Spanish market leaders. Oquendo in early 2013, a new fund 100M together with the Banca March and European Investment Fund. HIG has been in the news over the past year for the purchase of portfolios of real estate assets from the SAREB.

What are the differences compared to senior or traditional debt?

Almost all speakers explained that the main difference is reflected in the flexibility in structuring. This flexibility is made concrete in the following points:

- The term is usually longer and in bulet form, i.e. to be repaid at the end of the life of the debt.
- It requires closer proximity to the company and therefore usually requires a seat on the board and monthly financial and business reporting requirements.
- They usually set a time limit within which early repayment is not possible, usually in the region of 3 years.
- They offer a faster response time of up to 2-3 weeks.
- The big issue that came up for discussion was the associated costs. Most indicated costs above 10% and comprised an origination fee, a margin over Euribor, a pic and a warrant.
- Mezzanine debt is transactional, i.e. it is usually linked to a relevant investment, the purchase of a competitor, etc.

"The cost of these forms of funding is directly linked to the cost of obtaining funds for these vehicles. Funders can have access to high-yield debt that may be yielding around 7%, plus a few points for higher risk-taking, plus the associated management fees, we have to be talking about above 10%" says Diego Gutierrez of Abra Invest.

Alternative or complement to traditional financing?

It is clear that this new way of funding is here to stay and grow, having to reach the same prominence as it can have in markets such as English and French. But according to Alfonso Erhardt will not have a mass effect leading to the replacement of traditional banking but will have to find ways to complement each other.