Private credit “tidal wave” of defaults never materialised

The private credit sector has performed better than expected in recent years despite predictions of rising defaults, experts have said.

Paul Spendiff, head of business development – fund services, at fund administrator Ocorian, heralded the health of the sector and noted that GPs’ willingness to offer restructuring solutions has kept a “tidal wave” of defaults at bay.

“I think overall that credit, and particularly direct lending, is in a much healthier place than was probably predicted two years ago,” said Spendiff.

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“And it continues to take market share. Overall, credit is in probably a much better place than people thought it was 18 months ago.”

Anatoly Sorin, head of UK, Nordic Trustee, agrees that private credit has performed well, despite a slight uptick in defaults. However, he pointed out that this default activity has been limited to certain geographies and segments, such as the real estate markets in China.

“Last year, we had this anticipation that there would be a tidal wave of defaults coming our way,” says Sorin.

“And while I will say there was an increase in defaults, we never saw the tidal wave that was anticipated.

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“What was really interesting is that most of the stuff that came in got restructured anyway. So there was appetite there to work with the lenders and with the borrowers to make sure the loan can continue in its form rather than foreclosing, and liquidating the borrower.”

Spendiff and Sorin have worked side by side at Ocorian ever since Ocorian’s acquisition of Nordic Trustee in 2022. Since then, they have worked with countless private credit firms at a granular level, assisting them with everything from fund administrations, SPV administrations, GP services, and payroll.

“From a fund’s perspective, we support approximately £280bn of assets,” says Spendiff,

“From a capital markets and loan administration perspective, I think it’s not dissimilar.”

Ocorian was founded in 1971 as the law firm Bedell Cristin, with Bedell Trust providing financial services. Over the years, it has grown, expanded and rebranded to become a key player in the administration space, with more than 8,000 clients globally.

Under the Ocorian umbrella, Nordic Trustee has started developing its loan agency work, and administering private debt.

“We come in as an agent and we administer the funds flow between the lenders and the borrowers, the calculations of what’s due to whom,” explains Sorin. “And we make sure the money flows through us so that we get the money to where should belong.

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“We also act as a security trustee, so we can step in and assist the lenders in whatever the process they want. It can be an unwind and a liquidation or it could be a restructure. All of those roles are done by the trustee to make sure that it’s done in an orderly fashion.”

In these roles, Spendiff and Sorin have witnessed first hand how the private credit sector has grown over the past few years, during a particularly trying economic environment.

Spendiff believes that we have now moved into a more normalized interest rate environment, and “actually the credit sector has performed admirably”.

“In the last 18 months, interest rates have risen and the credit sector has performed even better, if anything,” he adds. “And the margins have been supported in default. The loans have not turned out to be risky.”