‘Megatranche’ private credit loans on the rise

Private credit loans are increasing in size, with some lenders now offering ‘megatranche’ facilities, as competition with mainstream banks heats up.

The $1.75trn (£1.4trn) private credit sector has flourished in the current high-interest rate environment, growing from what was historically a middle market lender to a serious competitor to the broader leverage loan market.

“I’ve been surprised by the size of some transactions, which are definitely getting bigger,” said Kumar Tewari, partner and head of European private credit at Katten Muchin Rosenman UK.

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“Where traditional lenders have perhaps struggled to get the right terms on pricing and leverage, we’ve seen all-in-one solutions from private credit lenders. Some of these deal sizes are really quite large. I think that will be a relatively consistent feature going forward.”

Innovation in the private credit space has led lenders to offer unique products that can be customised to fit the needs of individual sponsors, Tewari added, which can include megatranche loans.

“Typically, there were conventions around what a unitranche product looked like, how it was documented and how it was presented to the market,” he said. “In the last few years, that basic concept of the unitranche loan has really evolved. Some private lenders have gone on to do what we call the megatranche.

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“These are really sizeable private credit loans made available by private credit lenders to private borrowers. These loans rival some of the largest jumbo syndicated loans that banks have written.”

Private credit lenders’ secret sauce is their investment into relationships, Tewari said. “In order to give the type of leverage that a borrower may need, I think there’s a slightly different psychological investment that goes into looking at the credit and the structuring risk,” he said. “I think this is a really telling point about the evolution of the market and the maturity of thinking within this market.”

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