Top law firm hails staying power of private credit
Private credit’s popularity is set to continue despite the resurgence of bank lending, according to a new report from Skadden, Arps, Slate, Meagher & Flom.
The law firm hailed the flexibility and creativity of private credit as a key factor in its popularity, and predicted that “private capital will remain a significant alternative and an influence on the broader financing market.”
This is despite the return of bank lending, which can often offer more attractive rates for borrowers.
“Private capital became an important option for companies when the conventional financing markets were disrupted by rising interest rates, inflation, bank failures and other factors,” said Skadden, Arps, Slate, Meagher & Flom in a memorandum.
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“While conventional financial markets are stabilizing and syndicated loans are once again proving more attractive to some than private borrowing, other companies may prefer private capital for the flexibility, creativity, certainty and speed of execution it offers.”
The law firm noted that large amounts of capital have flowed into the private capital asset class over the past decade, resulting in a continued source of funds and the ability to provide larger fundings. This has been particularly significant in recent years as traditional lenders withdrew from the market amid macroeconomic uncertainty.
“With traditional markets improving, conventional providers of funding are working to regain market share,” said the law firm.
“But we expect private credit and other forms of private capital to continue to be attractive options for companies because of the flexibility, creativity, certainty and speed of execution they offer.”
Skadden said that it expects private credit to remain a significant presence in the financing market due to its ability to carry out faster executions and offer deal flexibility and creativity, which allows companies to better tailor the financing to achieve their specific business objectives.
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The private credit market also offers more deal certainty, as the market risk of syndication is removed.
It can also offer structural and strategic solutions to companies in need of funding. Furthermore, the recent popularity of private credit means that there is “enormous sums” are available for deployment within the sector.
“How much market share traditional financing sources will reclaim is impossible to predict,” the law firm added.
“But, given the advantages private capital can offer to the right companies and in the right transactions, and the significant amount of cash available through sources of private credit and other private capital, we expect private capital to continue to be an important part of the financial landscape.”
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