Private credit giants now competing with BSL market
The largest players in the private credit market have come to dominate the space, and are now competing with the broadly syndicated loan (BSL) and public markets.
In a new analysis from Corinthia Global Management, the credit manager said that the private debt market “continues to mature and arguably has come of age.”
Corinthia noted that a segment of the market has become “dominated” by scaled managers, whose focus is now shifting to competing with the BSL and public markets. These giants are now launching products and hiring teams focused on large cap transactions and adjacent strategies.
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Corinthia said that this expansion of the opportunity set can be seen as a positive for sponsors as it offers more choice in terms of financing solutions, and attractive to LPs who may have more choice in terms of risk-adjusted returns.
This could lead to an ever-increasing opportunity set within the core middle market, the firm said.
“Continued growth within private debt creates opportunity for those focused on the core middle market,” said Corinthia.
“As more established lenders with scale raise larger and larger funds, it becomes less efficient to deploy into mid-sized transactions.
“It is increasingly common to see private credit deals exceeding $1bn (£0.82bn) and current estimates suggest that private credit is funding around 85 per cent of leveraged buyouts.
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“We therefore see material opportunity for those with established relationships to carve out a niche within the core middle market.”
The Corinthia team has also predicted that private market participants will move from an environment of competition to cooperation in the year ahead. As banks look to benefit from the tailwinds in private debt, the firm said that it sees their role evolving to providing GP stakes and launching JVs, in addition to the more traditional aspect of providing fund financing.
“We see more asset and wealth managers with distribution or structuring capabilities partnering with GPs that have strong origination, with each group playing to their strengths,” said Corinthia.
“These shifts could lead to significant changes in the industry, such as a decoupling of asset origination from the downstream parts of the value chain. A new breed of partnerships and open-architecture business models could emerge as a result.”
Looking towards the year ahead, Corinthia added that deal pipelines should improve, and companies are on track to grow back into value, which should provide a positive tailwind as we head into 2025.
Furthermore, an increased supply of deals will underpin attractive risk-adjusted yield.
“After 18 months of super profits from direct lending, we see returns normalising but remaining compelling as interest rates settle at a higher long-term level,” added Corinthia.
“The risk side of the equation is positive with leverage levels down and the bilateral nature of the asset class enabling good long term downside protection.”
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