Private Credit - recent news

Happy Sunday,

Our team surveyed several recent news stories in Private Credit. Check out some of the highlights.

In one market update, PGIM CEO David Hunt anticipates a "shakeout" in the private credit market soon. The reason? Investors' stricter criteria in manager selection.?

Hunt observed a trend wherein fewer managers are raising larger amounts. This could indicate investors' preference for seasoned managers with extensive market experience.?

Overall, PGIM remains optimistic about the ongoing investor interest in private credit, especially in direct lending and asset-based finance. This interest is all fueled by banks' adjustment of lending practices to comply with more stringent capital regulations.?

Despite concerns regarding the balance of risk and reward in private credit, JP Morgan Bank offers insights and a positive outlook on direct lending for four key reasons:

• Direct lending continues to offer attractive yields, particularly when compared to public market credit spreads.
• Growth in direct lending appears healthy and not overly aggressive.
• Underwriting standards and fundamentals in direct lending remain strong, with a relatively low prevalence of risky loans.
• Although defaults may increase, investors could still receive adequate compensation for the associated risk.

The Deloitte Private Debt Deal Tracker Spring 2024 , which covers data from H2 2023, has some interesting insights for North America worth sharing:

Global direct lending fundraising by quarter

Data sourced from Preqin

According to the data gathered by the report, 2023 was the third-best year to date for direct lending fundraising. Moreover, 90% of investors find that private debt strategies continue to meet their expectations on returns. Another 45% anticipate it to perform better in the next 12 months. North America remains the preferred region for investors according to the data.

North America direct lending fundraising by quarter

Data sourced from Preqin

The largest North American funds raised in 2023 include:?

• HPS Core Senior Lending Fund II - $10,000M
• Blackstone Green Private Credit Fund III - $7,100M
• Antares Senior Loan II - $6,000M
• Whitehorse Liquidity Partners V - $5,300M
• Blackrock Global Credit Opportunities Fund II - $2,731M

Fund Finance Market Insights

Deloitte also tracked some interesting data on fund finance.

To quote the report, “In this environment of slow fundraising, we are seeing a rising trend of funds using NAV financing to bridge the gap between new vintages, allowing for continued investment in prior funds before new vintages come online.”

Continued insights from Deloitte: “We have increasingly seen a greater proportion of NAV financings being used to ‘downstream’ proceeds to support the growth of PE portfolios and anticipate the usage of NAV facilities to continue to grow in Private Equity given the flexibility of the product and breadth of applications, with the alignment of LP and GP interests over the use of NAV facilities remaining central.”

Recent Interesting Reads?

• Over the past decade, private credit has seen remarkable growth, soaring from $435 billion to $1.7 trillion. This expansion has prompted the development of a strong secondary market for private credit , presently valued at $30 billion and anticipated to exceed $50 billion by 2027. Certain fund managers, such as Apollo Global Management and Pantheon, are actively raising specialized funds tailored for this market.

• The 13th Annual Global Insurance Survey conducted by Goldman Sachs Asset Management reveals a notable shift among insurers towards high-quality and private credit investments amidst persistent macroeconomic concerns. Despite ongoing worries about economic slowdowns and geopolitical tensions, insurers maintain a cautious optimism regarding market prospects in 2024. This optimism is reflected in their increasing allocation of assets towards private credit, high-quality debt, and riskier investments.

• Fitch Ratings predicts a rise in private credit issuance for 2024, fueled by stabilized rates and pressure from private equity investors seeking returns. Default rates climbed in 2023 due to high rates, with expectations of similar rates but more severe consequences in 2024. Syndicated loan defaults increased in 2023, particularly among large middle-market companies facing exposure to elevated interest rates. Fitch anticipates sustained high default rates in 2024, with middle-market defaults likely to impact the overall average due to rate exposure.

Recent Transactions of Interest

• Blackstone, Goldman Sachs, and Sixth Street are spearheading a ￡1.62 billion debt refinancing for Iris Software , with participation from Singapore’s GIC and a group of other lenders. The financing includes a ￡950 million unitranche loan and a ￡500 million delayed-draw term loan. This conveys a noteworthy victory for direct lenders amidst competition from syndicated loans.

• The Teachers’ Retirement System of Louisiana has allocated $100 million to support the latest Oak Hill fund . TRSL has committed an additional $100 million to the OHA Senior Private Lending Fund, which aims to raise $4 billion. This fund will pursue a senior debt strategy, concentrating on corporate sector investments in North America.

What are you working on across the private credit segment?

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At my firm, AXIS Group Ventures , we specialize in global debt placement and private market secondaries for VC and PE-backed companies.?

If you have come this far, touch base.

Regards, Tim