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Private Credit 

Dan Mika

What’s next for the world of leveraged credit after a 2024 featuring a retreat from the highest interest rates since the Great Financial Crisis, a sweeping win for Donald Trump and record amounts of loan repricings?

9fin caught up with R. Jake Mincemoyer, global co-head of debt finance at A&O Shearman, about what he sees coming in 2025 from his perch overlooking all things leveraged finance.

1. From your conversations with market players so far, what are you anticipating for the leveraged finance markets in 2025?

I expect to see a continuation of portfolio transactions, such as repricings and recapitalizations but also a steady increase of new LBOs, which the market has been waiting for. I was worried that the US election would lead to continuing market uncertainty, especially if it took a while to determine the winner, but the results were clear and decisive and we have already seen an increase in new deal activity which is clearly as result of the election outcome.

2. To steal a descriptive from Kyla Scanlon, how different have the vibes been from your conversations with dealmakers these past few weeks compared to this time in 2023?

Much more positive — rather than cautious optimism (at best) that the next quarter would see more new deal activity (which was repeated every quarter for a few years) — we are now actually working on new deals. There are still a few worried about the valuation gap between buyers and sellers but the pressure on funds to sell has only grown over time and we now have a more positive outlook across the board.

3. What are the factors lately that are driving names to pick private credit for their funding versus BSL, or vice versa?

Private credit has remained resilient even with the reopening of the BSL market. Private credit continues to benefit from better speed and certainty of execution (due to the lack of a rating and syndication process) and the ability to finance very large deals given the growth in fund sizes over the past few years. A number of participants are turning back to the BSL market given its tighter pricing and ability to finance even larger deals. But in most cases, we see PE funds evaluating both initially in most situations and frequently testing terms in both markets before making a final determination of which horse to choose.

4. What do you make of recent commentary about the lines blurring between syndicated and private credit? That line of thinking has grown as major asset managers race to snap up private credit shops.

I think this commentary is largely driven by the increase in capacity in the private credit market — for all but perhaps the very largest deals, it is now a real option in addition to a BSL financing. While there certainly has been a convergence of terms between the two markets, there is still a notable difference. A good credit in a strong market will not likely need to utilize the litany of documentation flex provisions that the lead arrangers will have in their pocket in order to clear a BSL financing. Private credit performed through COVID and filled a void when the BSL markets closed for asset managers now see this as a much larger and more mature market than five years ago. Leveraged finance market participants now have three key markets to utilize — BSL, private credit and high yield.

5. The market’s expectation is that president-elect Donald Trump will put into place a much lighter touch in M&A oversight. How are you approaching this factor with your clients, especially when we don’t know exactly what the policies are right now?

As a lender side lawyer, we aren’t as deep in the weeds on this issue but even without knowing the exact policies it is clear that there will be a much more favorable approach generally. The question is whether we will see any greater scrutiny on foreign buyers of US businesses or in the tech space. But even in those areas, I think the outlook is still clearly more positive for more deals to get done.

6. Your remit includes global debt financing. What stands out to you when you assess the expected policy changes in Washington to cross-border transactions with the UK and EU? Are there any clashes you anticipate between regulatory environments?

While we certainly expect a lighter regulatory touch in the US, I don’t know yet what to expect from the UK and EU as they don’t seem to have as clear of a forward policy view as the US. The key driver for our markets is new M&A activity and we certainly expect to see more from the US. Also, in a strong market there is less of a need to source financing across the global markets. I expect to see cross-border M&A being financed from a single market (be that the US or Europe) based on where the relevant business has more assets and revenue.

7. Let’s pivot again to the world of restructuring and distress. What trends are here to stay in LME strategy?

I think the clearest trend is that out-of-court transactions will continue to be the starting point for any distressed situations. While LME protections are generally being strengthened in newer deals, which may limit their effectiveness going forward, there are a lot of (especially underperforming) ones from a few years ago that will continue to allow for LME transactions to occur over the coming years. I expect 2025 will be a real tale of two cities — a significant increase in new LBO activity coupled with continuing restructurings of deals done pre-Ukraine.

8. How is A&O Shearman looking to expand its market share on LME activity? Is it more on the creditor side or the debtor side?

We have an incredible creditor-side bench of partners who service our clients on all aspects in the leveraged finance market. We also have a great debtor side finance team in London and a growing debtor side finance team in the US. Watch this space — we didn’t finish with the A&O/Shearman merger — that was just the start!

9. What's your favorite holiday tradition?

Christmas is my favorite time of year, so I have way too many to share. But for me it is important to maintain the old traditions (like Berl Ives and Perry Como carols being played from 1 December and watching the Rankin Bass Claymation Christmas specials) while creating new ones with friends and family. Our family tradition from this generation is to host a large extended family Christmas dinner and then our immediate family goes to Utah to ski together over New Year’s, which gets better every year as we can now all ski the whole mountain together.

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9Questions — R. Jake Mincemoyer, A&O Shearman — A debt lawyer’s look toward 2025

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