Institutions seek out investment-grade private credit
Insurers and other institutional investors are increasingly seeking out investment-grade private credit investments as interest in the sector grows.
According to a recent report from investment manager Voya, investment grade private credit is a $1tn (£0.78tn) market with issuance of between $100bn and $110bn per year. Voya has estimated that as many as 90 per cent of private placements are investment grade, with the majority of issuances earning an equivalent credit score of between A- and BBB-.
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Investment grades are assigned by independent ratings agencies such as Moody’s or S&P, and rank private credit instruments based on the quality of the underlying assets, the expertise of the investment team, and the likelihood of default.
Jeanine Arnold, senior vice president, leverage finance EMEA for Moody’s Ratings, told Alternative Credit Investor that she has seen rising demand for investment-grade private credit, particularly among insurance companies. In response, more private credit fund managers have begun intentionally structuring new products in a way that is intended to secure a higher investment grade.
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“A lot of the direct lending emanated from smaller borrowers that were perhaps in competition with leverage finance,” she said.
“But the risk profile will probably improve in the sense that you won’t just see private credit in what we would say is weaker Baa3 companies. They’ll structure their products so that they can get an investment grade rating, precisely because they want to ensure that the insurance companies can participate.
“We’re seeing a lot of private credit companies coming to us saying, how would you rate this? Could this be rated? And the objective is that they get an investment grade rating.”
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