Private Credit recent industry news

US Private Credit Defaults Hit Highest Level Since 2020, Proskauer Index Reports

Private credit defaults in the US have increased for the third consecutive quarter, reaching 2.71% in Q2, up from 1.6% at the end of 2023 and 1.84% in Q1 2024, reports Proskauer’s Index. This is the highest since the pandemic's peak in 2020. This marks the third consecutive quarter of increasing defaults, though the rate remains lower than the 8.2% seen in 2020.

Proskauer’s index tracks 922 senior secured and unitranche loans in the US, with a total original principal of around $150 billion, as cited by Pitchbook. Defaults are identified by Proskauer as the earliest of: missed debt payments, distressed restructuring, breaches of financial covenants, loan modifications to prevent defaults, or defaults expected to extend beyond 30 days.

The rise in defaults affects companies of all sizes, with large companies seeing the most significant increase. Increasing defaults may not necessarily indicate a persistent downturn but could present opportunities for better risk management. Although private credit has seen substantial growth in both popularity and size, it still faces uncertainties, especially regarding its performance during a recession.

Source: Proskauer

Proskauer’s Default Index shows that default rates increased across all EBITDA bands from Q1 to Q2 2024. For companies with EBITDA under $25 million, the default rate rose from 1.9% to 2.6%. Mid-sized firms, with EBITDA between $25 million and $49.9 million, saw their default rate increase from 2.0% to 2.7%. The most significant rise occurred in companies with EBITDA over $50 million, where the default rate jumped from 1.5% in Q1 to 2.8% in Q2.

Recent Developments

• Blackstone Inc. is increasing its commitment to international credit opportunities, seeking growth in a broader range of debt, including local-currency investments, as stated by the firm's global credit head.

• Deutsche Bank, Blackstone, and New York Community Bancorp are grappling with issues in US commercial real estate, including higher provisions and financial losses. With $94 billion in distressed assets and more at risk, lenders face difficulties, while private credit funds aim to raise $50 billion for investment opportunities.

• Hamilton Lane is introducing its Senior Credit Opportunities Fund (SCOPE) on the Solana blockchain in collaboration with Libre. This initiative targets crypto-native investors and aims to improve liquidity and market transparency. It represents Hamilton Lane’s first blockchain project on Solana.

• KKR raised $32bn in the second quarter – the second highest quarter in the firm’s history – bringing assets under management (AUM) to over $600bn.

Recent Market Deals

• Great Rock Capital announced that it has provided $75 million in total capital to three NWI affiliates. The credit facilities, which include two revolving lines of credit and a term loan, provide flexible growth capital for sister companies, NWI Nashville, Utica Realty Nashville, and NWI Wichita – all portfolio companies of The Stony Point Group.

• Comvest Credit Partners is pleased to announce that it is acting as Administrative Agent and is the Sole Lender on a senior secured credit facility to support the acquisition of TFS by Southfield Capital. TFS is a leading independent provider of turnkey fleet management services for material handling assets such as forklifts and automated guided vehicles.

• Sumitomo Mitsui Banking Corporation has introduced a €450 million private credit fund in Europe, focusing on senior-secured loans to robust middle-market businesses. Sumitomo Mitsui DS Asset Management is participating as an LP, and Campbell Lutyens is advising the fund. This initiative supports SMBC Group’s strategy to broaden its global presence in alternative assets.

• Whiskey House of Kentucky obtained a $115 million credit facility, comprising a $90 million term loan and a $25 million revolving credit line, from Truist Bank, U.S. Bank, First Horizon Bank, Rabobank, and CoBank. The financing will be used to refinance existing loans and support future growth.

• Runway Growth Capital added $20 million to its previous $40 million loan to Elevate, bolstering the company’s growth and expansion efforts.

• Digitt, a Mexican fintech offering credit card debt refinancing, has secured a $50 million debt facility from CoVenture Management, marking its first direct investment in Latin America. The funding will help Digitt expand its services and grow its customer base.

If you’d like to discuss any private credit opportunities, you can reach me at tbarnes@axisgroupventures.com.

You can learn more about Axis Group Ventures at our website here.?

All the best - Tim