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The latest trends in Structured Lending

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Adam Daniels heads Paragon's Structured Lending team, providing funding to non-bank lenders and other organisations in an array of markets. He talks to us about what trends are driving the market, how clients fared through the pandemic and what the future holds.

What trends are you seeing in the structured lending market presently?

The industry is experiencing a period of growth regardless of the pandemic. Specialist lenders are nimble and seek to serve the niches that the high street banks have exited, providing the opportunity to grow their lending activities.

This growth has been assisted by the benign credit environment, but it demonstrates consumers are very comfortable dealing with smaller non-bank lenders. A good example is the 'Buy now pay later' market, which has blossomed over the last few years. It is a well-established proposition, but when combined with a much stronger technology platform and a strong customer experience, customers like to use it.

From a funding perspective the market is competitive. The bank lenders have been joined by debt funds and investment banks looking to support the market. Increased liquidity is welcome so long as it is for the long term and on sensible commercial terms.

Are there any specific sectors where demand is strong?

Demand has been strong across a variety of sectors. However, the property sector has exhibited robust growth throughout the pandemic.

This has been seen in mortgages but also in shorter-term products, such as bridging and development finance, where demand and therefore growth has been very strong.  These are very competitive markets so discipline is required to prevent a 'race to the bottom' in terms of credit quality and margins and that's something we're focused on.

How are clients structuring deals?

At Paragon we utilise a senior Revolving Credit Facility to meet the needs of our clients. The transactions are always bespoke and designed to work in conjunction with the client's business model to optimise the use of cash and provide a certainty of funding. Whilst these facilities take a few months to put in place they can go on for many years with 'tweaks' made as the client evolves, ensuring that Paragon can lend through the cycle, as we did through the recent pandemic.

How has the non-bank lending sector recovered emerging from the pandemic?

As mentioned previously, some property related segments actually expanded strongly through the pandemic. Other segments received Government support that provided much needed liquidity. Some of the most adversely affected clients, for instance those lending to the hospitality sector, have to a large extent recovered in terms of trading. The speed of this recovery has been swift.

Are there any stand-out deals that you have recently completed?

We had a very busy period over the summer signing three new deals. Two were property related; we provided a £25m facility to a bridging and development finance lender called Atelier. They are backed by M&G with a very experienced management team.

G2M also signed a £25m facility to enable them to acquire and refurbish more residential properties to ultimately let. G2M is operating in the very dynamic residential letting space and a very modern approach to their tenants and are also backed by Private Equity.

The third deal was a £20m facility to LE Capital, which was formerly the RateSetter dealer finance business. LE is backed by a Family Office. Clearly, demand for second-hand vehicles driven by the pandemic and a shortage of new vehicles bodes well for the business.

What plans are in place for Paragon Structured Lending?

We are operating in a growing area of the market and possess unrivalled experience and expertise. We will continue to use our knowledge to construct well-crafted bespoke lending facilities to our clients.

We are looking at how we can work with strong emerging businesses looking for sub £10m facilities. In addition, we are considering some new product offerings to be launched next year and are looking to expand the team. All in all, a very busy and exciting period ahead!

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Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551