Banks Rush to Gain Foothold in $1.5 Trillion Private Credit Market
· Banks hope to generate revenue and stay relevant to borrowers
· Barclays, Rabobank, SocGen and Deutsche Bank join the fray
By Bloomberg:?Katharine Hidalgo?and?Silas Brown
14 September 2023 at 15:00 BST
Banks are increasingly muscling in on the $1.5 trillion private credit market in a move that further blurs the lines between private-lending funds and their traditional banking rivals.
In recent weeks,?Barclays Plc,?Societe Generale SA?and?Deutsche Bank AG?have all made concerted efforts to grab a slice of the lucrative corner of leveraged finance. Bloomberg News reported Thursday that Dutch lender?Rabobank Group?became a cornerstone investor for a new sustainable private-lending firm, Colesco.
“The banks do not want to miss out on the private credit boom, and clearly want to stay relevant for their clients,” said?Floris Hovingh, head of European debt advisory at Perella Weinberg Partners
Private debt has become an increasingly sought-after funding tool for buyout firms because the banks that dominate public debt markets pulled back last year amid a spike in interest rates and a drop in investor risk appetite. Banks are concerned about this shift as underwriting these types of loans — and then selling them to other investors — is a strong source of revenue for them.
In the past few weeks, at least four major banks made further strides into private debt, be that through balance sheet lending, tie-ups with established investors or raising third-party capital.
Meanwhile, Barclays is?finalizing a tie-up?with AGL Credit Management to invest in private credit, with Abu Dhabi Investment Authority in talks to anchor the partnership’s first fund. The Rabobank venture will offer senior secured and subordinated debt to certain companies with earnings between €10 million and €100 million.
领英推荐
“Wall Street giants and European investment banks are looking to capture part of this opportunity via their asset management units, either by offering these services on balance sheet or by partnering with the alternative lenders,” said?Ana Arsov, global co-head of banking at?Moody’s Investors Service, adding that the ratings agency thinks banks will continue to expand such business opportunistically.
New Ventures
Competition between banks and private lenders to fund leveraged buyouts came to a head in the wake of the Russian invasion of Ukraine. Many issuers that would have previously been a shoo-in for leveraged finance syndications are now opting for private offerings instead.
European Broadly Syndicated Loans and Bonds Falter
Source: Bloomberg
The advent of the dual-track process, in which borrowers consider competing bids from both banks and direct lenders, illustrates how far credit funds have encroached on the traditional debt markets.
Recent deals taken by direct lenders include a record-setting refinancing deal for?Finastra Group Holdings Ltd.?as well as new buyout financings for?Dechra Pharmaceuticals Plc?and?Constantia Flexibles?in Europe,?New Relic Inc.?in the US and?InvoCare Ltd.?in Australia.
“It’s shocking how many more direct lending deals there are than syndicated deals,” said?Eric Leicht, a partner at law firm White & Case. “Banks have wised up to the fact that the market has changed and they’re going to move to try to protect their interests.”
Isn't bank participation in private credit just called "credit?"