Unitranche Pricing in Tariff-Hit World Remains Fluid as Universal Level Drops to 10%; Direct Lenders Consider Price Hikes to Mirror Public Markets Following Apleona Widening

Reporting: The European PCDO team

Yesterday, April 9, in a spectacular reversal, the Trump administration announced that U.S. tariffs on goods from the E.U. and the rest of the world would be immediately lowered to 10%, apart from China, which as of today, April 10, stands at 145%.

Before the 90-day tariff reprieve was announced, European direct lending funds were looking to hike unitranche pricing by 50 bps to 75 bps on large European deals that previously would have priced in low 500 bps, while mid-market lenders who see their world as a bit more insulated from the first order impacts of tariffs, said they would seek at least a 25 bps premium. See below for average European unitranche pricing over the past four quarters:

Source: Octus/PCDO

Today, direct lenders have been closely monitoring the pricing of the facility management service provider Apleona to give an indication of the premium on pricing that tariffs now command. Apleona today priced its €2 billion term loan B, including a €150 million delayed-draw term loan at 98 OID, with Euribor+425 bps margin, and a £305 million TLB at 98 OID with 525 bps over the reference rate, as reported. On April 1, the day before the tariffs were announced, price talk for Apleona’s €2.2 billion-equivalent TLB was E+375-400 bps, with the sterling portion at 475-500 bps over the reference rate, with OIDs at 99.5, as reported. Apleona is considered a well-performing credit but even it has struggled in such heightened uncertainty, as reported.

Direct lenders would like to adjust their pricing levels in step with public markets, but nobody wants to be the first, said industry players, with one adding that equally no one wants to be the last one offering pricing that is not adjusted to the new environment. Some direct lenders said they believe that it is not worth risking a relationship with a sponsor for less than 1% of interest and so will honor terms already offered to sponsors at the original level. However, most are struggling to figure out what level to quote for new opportunities and many have put their pens down on processes in the short term as result.

Uncertainty has hit deal flow most dramatically since tariffs were announced on April 2, as reported. There has been an inevitable chilling effect, said industry players, as lots of processes have been unofficially paused.

Even if deals do move forward, sponsors will have to prove that their portfolios are resilient to risk if they want to secure premium valuations, according to industry players. If their assets did well through Covid and the Ukraine war and can also withstand supply chain hits then they are better placed, as investors are less worried about tariffs themselves and more worried about the unknown.

Yesterday, answering questions on his reversal on tariffs President Donald Trump declared, “you have to have flexibility.” Investors will certainly have to show plenty of flexibility in the weeks and months ahead.