Private credit “dry powder” may help struggling borrowers
Private credit “dry powder” could provide a source of funding for struggling borrowers, S&P Global has said.
The data and analytics firm cited PreqinPro data which found that private credit firms currently have more than $400bn (£317bn) in capital that has not yet been deployed.
Of this, $150bn is earmarked for distressed investments and special situations, meaning that lenders can find opportunities or support challenged portfolio companies if credit conditions weaken.
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“Dry powder available for private credit lending has swelled as investors have increased allocations to private credit funds,” S&P Global said in a report.
“While this dry powder serves as a source of funding for new deals and new investments, private credit funds may also hold some of this in reserve for reinvestment in struggling portfolio companies.”
The analysis went on to say that this pool of capital could be a “critical source of funding” for borrowers that are struggling in the face of higher interest rates and challenging financial conditions.
“For companies on the precipice of default, liquidity is critical,” S&P Global said.
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“The availability of funding, such as through private credit, can be the difference between a default or an eventual turnaround.”
S&P Global’s report, titled ‘buying time post-default with private credit’, reveiewd more than 1,200 defaults of publicly-rated issuers since 2008 to understand the impact of private credit on defaulters.
It found a modestly higher share of defaults among those with private credit funding.
However, it also noted a shorter average time between defaults for those repeat defaulters with private credit funding, compared to those without.
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