The European non-investment grade corporate loan market has two segments: the broadly syndicated loan (BSL) market, which attracts investors investing in broader syndicated deals, and the direct lending market for investors investing in club deals. While correlated, there are subtle but significant differences between the two markets. Both markets primarily provide floating-rate loans; however, divergences exist in terms of market liquidity, company size and credit facility size. Given the greater liquidity in the BSL market, pricing and terms are a function of the technical market and competitive factors, whereas the more illiquid direct lending market has a stronger orientation to assessing company fundamentals.

In contrast to the Morningstar European Leveraged Loan Index (ELLI) which is comprised of companies borrowing in the BSL market, the constituents in the ESDI are virtually all companies borrowing in the direct lending market.

The direct lending market is a significant source of capital to private equity backed middle-market companies. The ESDI benefits market participants by providing information to facilitate a greater understanding of the attributes of this important source of capital to the private sector.

How We Obtain the Information

On a quarterly basis, Lincoln values over 5,500 private companies primarily owned by over 170 alternative investment funds and lenders to funds. Most of these companies are levered via borrowings from the direct lending market. Lincoln’s European private market coverage represents 10-15% of the total volume of private companies valued quarterly. A significant percentage of ESDI constituents are based upon valuations of loans provided for non-public BDCs and other private investment vehicles and, therefore, not disclosed in public filings.

For many of the private companies valued quarterly, Lincoln advises on the fair value of at least one senior debt security in the capital structure. All valuations conform with IFRS and U.S. GAAP and fair value principles and have been reviewed by fund management, fund boards, limited partners and auditors.

Additional information can be found in our methodology discussion and on our website: www.lincolninternational.com/perspectives/an-overview-of-the-lincoln-senior-debt-index

IMPORTANT DISCLOSURE: The Lincoln European Senior Debt Index (Lincoln ESDI) is an informational indicator only, and does not constitute investment advice, an investment recommendation or other information recommending or suggesting an investment strategy (within the meaning of the EU and UK regulations), or an offer to sell or a solicitation to buy any security. It is not possible to directly invest in the Lincoln ESDI. Some of the statements above contain opinions based upon certain assumptions regarding the data used to create the Lincoln ESDI, and these opinions and assumptions may prove incorrect. Actual results could vary materially from those implied or expressed in such statements for any reason. The Lincoln ESDI has been created on the basis of information provided by third-party sources that are believed to be reliable, but Lincoln International has not conducted an independent verification of such information. Lincoln International makes no warranty or representation as to the accuracy or completeness of such third-party information.

The Lincoln ESDI should not be construed as an offer to sell or buy, or a solicitation to sell or buy, any products which refer to the Lincoln ESDI. The use of the Lincoln ESDI in any manner is not endorsed or recommended by Lincoln International and Lincoln International is not responsible for any use made of the Lincoln ESDI, and use of the Lincoln ESDI is by permission only via a Data Usage Agreement with Lincoln International. The Lincoln ESDI must not be used to: (i) determine the amount payable under a financial instrument or a financial contract or the value of a financial instrument; or (ii) measure the performance of an investment fund with the purpose of tracking the return of the Lincoln ESDI or of defining the asset allocation of a portfolio or of computing the performance fees (within the meaning of the EU and UK Benchmarks Regulations). Lincoln International does not guarantee the accuracy and/or completeness of the Lincoln ESDI and Lincoln International shall not have any liability for any errors or omissions therein. None of Lincoln International, any of its affiliates or subsidiaries, nor any of its directors, officers, employees, representatives, delegates or agents shall have any responsibility to any person (whether as a result of negligence or otherwise) for any determination made or anything done (or omitted to be determined or done) in respect of the Lincoln ESDI and any use to which any person may put the Lincoln ESDI. Lincoln International has no obligation to update the Lincoln ESDI and has no obligation to investors with respect to any product which refers to the Lincoln ESDI. Any investment in such a product will not acquire an interest in the Lincoln ESDI. Lincoln International is not an investment adviser and will not provide any financial advice relating to a product which refers to the Lincoln ESDI. Investors should read any such product offering documentation and consult with their own legal, financial and tax advisors before investing in any such product.

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