S&P predicts “relief” for private markets in 2025

S&P Global Ratings has predicted “relief” for private markets next year, as rates come down and make the cost of funding lower.

In its 2025 Global Credit Outlook, S&P noted that many private credit borrowers have already benefitted from repricing and improving financing conditions.

In the year ahead, repricing will continue to change market dynamics, S&P added.

“Repricings have defined recent broadly syndicated loan (BSL) activity, with spreads narrowing on more than 40 per cent of loans in 2024,” the report said.

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“To a smaller degree, this is affecting private credit as well, reducing the overall cost of funding for many issuers. New issue ‘B’ rated leveraged BSL yields have fallen by a full percentage point since the beginning of the year with their spreads holding below 400 basis points.

“While potential competition between public and private markets is supporting tight pricing, yields have already started falling as investors take a more constructive view of credit in light of rate cuts and the increased prospect of a soft landing.”

S&P added that companies should see a greater benefit from rate cuts in 2025 than this year, as lower rates take some time to flow through corporate financials.

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“As private credit matures, we expect size and sophistication to scale,” added the report.

“As private credit finds its balance with BSLs and high-yield bonds, this offers borrowers more diversification in funding.

“Private credit is best-positioned to provide execution speed, certainty, and flexibility in terms and structure of payment, such as delayed draws and payment-in-kind toggle options, as well as recurring revenue deals with revenue-based leverage covenants.”

Elsewhere in the outlook report, S&P predicted that there could be more geopolitical volatility in store for 2025, while tighter restrictions on global trade could weaken financial conditions if they materially increase inflation and, consequently, interest rates.

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