The Nordic credit markets offer investors a distinctive combination of attractive yields, floating-rate instruments and access to high-quality mid-market companies. The region’s established private equity industry also provides a source of lending opportunities. Evli’s Senior Secured Loan strategy seeks to capture this opportunity through selective lending to Nordic corporate borrowers, with a focus on private equity-backed companies.
For Jussi Hyyppä, Head of Loan Strategies at Evli, the Nordic credit market stands out for its combination of attractive spreads, strong corporate governance and transparent reporting. “The region has a large pool of high-quality, primarily mid-market companies that typically remain unrated by S&P, Moody’s, Fitch and other major agencies, offering investors attractive spreads,” he says. “These companies are established, high-quality businesses with clear corporate governance structures and transparent reporting.”
The predominantly floating-rate structure of Nordic loans is another distinguishing feature of the market. Despite these common characteristics, Hyyppä cautions against treating the Nordics as a single, uniform market. “Although we tend to think of the Nordics as a single region, it actually comprises four distinct markets, each with its own language, jurisdiction and currency,” he explains. “Investing across the region requires a local presence and in-depth market knowledge.”
“Although we tend to think of the Nordics as a single region, it actually comprises four distinct markets, each with its own language, jurisdiction and currency. Investing across the region requires a local presence and in-depth market knowledge.”
Jussi Hyyppä, Head of Loan Strategies at Evli.
The region’s established private equity industry, with sponsors such as EQT, CVC, Nordic Capital and Triton Partners, strengthens the pipeline of lending opportunities. “The Nordic focus and the private equity flavor make Evli’s Nordic Senior Secured Loan Fund a niche strategy among European senior loan strategies,” emphasizes Hyyppä.
The fund invests across three segments: privately negotiated Nordic mid-market loans, broadly syndicated Nordic senior secured loans and, to a lesser extent, floating-rate Nordic high-yield bonds. Hyyppä identifies privately negotiated mid-market loans as the most attractive segment on a risk-adjusted basis. These transactions allow Evli to invest alongside established Nordic commercial banks, which play an active role in arranging and financing loans to regional businesses.
“The leading Nordic commercial banks are very active in this space,” Hyyppä says. “They retain significant portions of these loans on their own balance sheets, so they have a lot of skin in the game.” A select group of institutional investors participates alongside the banks, with transactions often arranged through relatively small syndicates. This structure is complemented by strong lender protections in the loan documentation. As Mikael Lundström, Chief Investment Officer at Evli and a member of the loan strategy team, explains: “From our perspective, this segment offers excellent covenant protection, giving us a strong degree of protection when investing in these loans.”
Relationships matter in a selective market
Access to these transactions depends on established relationships with banks, private equity sponsors and other lenders. Hyyppä describes Nordic mid-market lending as a “bespoke, invitation-only type of market.” Investor syndicates typically comprise five to ten institutions, sometimes fewer, making it difficult for newcomers to establish themselves without an existing network.
Evli’s established presence in the region provides an advantage. Lundström highlights the firm’s nearly 30-year track record in arranging and executing loan transactions, alongside its participation in European high-yield markets since 1999. “The private equity people know us, they know how we work, and they know what deals we like,” he says.
Evli’s role as a capital provider, rather than a full-service commercial bank, also helps reinforce these relationships. “We don’t compete with banks in areas such as day-to-day banking, cash management or corporate finance services,” Hyyppä explains. “Our strategy is very much complementary, anchored in this region.”
Borrower selection and downside protection
Evli Nordic Senior Secured Loan Fund operates as an open-ended evergreen vehicle, investing continuously rather than following traditional private debt vintages. Its portfolio comprises more than 50 individual credit positions across different borrowers and sectors. The strategy follows a predominantly buy-and-hold approach, with Evli generally holding loans to maturity rather than actively trading or rotating the portfolio.
Evli’s approach to capital preservation starts with the characteristics of the businesses it finances. The firm focuses primarily on established companies in defensive, non-cyclical sectors, including business-to-business services, healthcare and information technology. Many are asset-light companies with strong cash generation and predictable operating performance, often backed by private equity sponsors. “From the credit investing perspective, all those components are very favorable,” argues Hyyppä.
“When you combine that with private equity sponsor involvement, you almost automatically end up focusing on defensive, non-cyclical sectors and asset-light businesses.”
Jussi Hyyppä, Head of Loan Strategies at Evli.
“We like the Nordic region because it consists of stable, open economies and operates within transparent, well-established jurisdictions,” Hyyppä says. “When you combine that with private equity sponsor involvement, you almost automatically end up focusing on defensive, non-cyclical sectors and asset-light businesses.” Evli avoids areas such as real estate and capital-intensive or cyclical businesses. Hyyppä estimates that excluding these sectors leaves the strategy with an investment universe roughly half the size of the broader Nordic high-yield market.
Hyyppä views private equity sponsors as active owners that can support business development while balancing growth with profitability. “They typically aim to grow their portfolio companies while maintaining a healthy balance between growth and profitability,” argues Hyyppä. For lenders, private equity involvement helps mitigate risk.
“We stress-test the free cash flow after investments, interest costs, capital expenditure and taxes. We ask how we can make sure that, if something bad happens, we are still on a downward trend in terms of leverage.”
Mikael Lundström, Chief Investment Officer at Evli.
Credit analysis focuses on the borrower’s ability to generate free cash flow after interest expenses, capital expenditure and taxes. “We’re very focused on free cash flow generation,” Lundström stresses. “We stress-test the free cash flow after investments, interest costs, capital expenditure and taxes. We ask how we can make sure that, if something bad happens, we are still on a downward trend in terms of leverage.”
Floating-rate income
All the fund’s investments are floating-rate instruments, limiting its direct interest-rate duration. Lundström describes the fund as a traditional carry strategy, targeting returns of approximately Euribor plus 450 basis points depending on market conditions (gross of fees), running at a current yield of around seven percent. “We aim to deliver stable returns, and I think our track record shows that these have been extremely consistent.”
“We aim to deliver stable returns, and I think our track record shows that these have been extremely consistent.”
Mikael Lundström, Chief Investment Officer at Evli.
Lundström also points to the importance of starting yield when assessing potential returns. “Historically, the starting yield is by far the best indicator of future potential returns. It’s not something you can promise, but it’s the best indicator.”
Extended holding periods and the outlook
The Nordic market has not been immune to the challenges facing private equity globally. Uncertainty and volatile public-market valuations have made it harder for buyers and sellers to agree on exit prices, extending holding periods for some portfolio companies. Hyyppä says sponsors have often chosen to retain businesses they believe still have development potential, continuing to grow them or pursue add-on acquisitions rather than sell into an uncertain market.
“For our loan fund, that has actually been a positive development because we have had the opportunity to hold on to these high-quality assets for longer,” he says. Longer holding periods do not automatically improve credit quality, but they can allow lenders to continue earning interest from businesses that remain operationally sound while sponsors wait for more favorable exit conditions.
“Despite ongoing geopolitical turbulence, uncertainty surrounding inflation and interest rates, and volatility in raw-material prices, credit quality across the Nordic region has remained very strong.”
Jussi Hyyppä, Head of Loan Strategies at Evli.
Lundström distinguishes between challenges in realizing private equity investments and deterioration in the underlying borrowers’ businesses. “It’s not that the companies are doing poorly; they’re doing well. The issue is what the exit multiple is,” he says. From a senior lender’s perspective, pressure on equity valuations is different from an inability to service debt.
Despite an uncertain macroeconomic environment, Evli sees the resilience of Nordic corporate borrowers as a key source of confidence in the market’s longer-term prospects. “We remain fundamentally optimistic about the outlook for Nordic corporate credit,” Hyyppä concludes. “Despite ongoing geopolitical turbulence, uncertainty surrounding inflation and interest rates, and volatility in raw-material prices, credit quality across the Nordic region has remained very strong.”
This article is part of HedgeNordic’s “Alternative Fixed Income” publication.
