“PE firms are expected to grow in confidence, with increased volumes in Q4 of 2023,” said Claire Trachet, founder of business advisory, Trachet. “Looking ahead to 2024, there is optimism for a robust PE landscape, with a substantial number of assets prepared for sale in the first half of the year and investment banks reporting record pipelines, signalling a positive outlook for the sector.”

How these deals will be financed is the interesting question. For much of 2023, private credit was the LBO debt of choice (indeed, the debt of choice for refinancing as well), backing monster deals that might once have gone to the syndicated markets. 

However, that tailwind is shifting direction. In the past quarter, we saw green shoots of a reversal, with the debt backing German laboratory services provider Synlab underwritten and syndicated. A number of middle-market transactions have taken the bank club route — including SMBC and a club of banks supporting Apax Partners' acquisition of two financial software firms, and in the public-to-private domain, the first bank underwrite of a sponsor-led take private of 2023 with Smart Metering Systems. 

Then, a few days ago, the weather vane truly swung away. The £1.2bn-£1.5bn private credit debt package intended to finance the prospective acquisition of IRIS Software — one of 2023’s largest private debt LBOs, appears headed in the direction of a bank underwrite too. What is going on, 2023?

However, no one’s particularly concerned. The sheer volume of capital available in private credit, its flexibility (not least its ability to relieve borrowers of the cash-pay burden through PIK), its leverage — and banks’ ongoing regulatory capital constraints will still make it the financing route of choice for high-growth companies. Let’s look at what it did in 2023. 

The year in articles 

Private credit truly made hay while the sun shone in 2023. Two articles written by 9fin illustrate this: Of the 14 deals to have been taken private in the UK by a sponsor, 13 were private credit financings. Sometimes over €1bn. (See below, deliberately blurred, but the full analysis is available on 9fin.com).

In 2021, the number of private credit financings in take privates was zero. 

For a neat visual on just how much LBO financing private credit has gobbled up in 2023 from the broadly syndicated market, there’s this graph, below. The full analysis, again, is on 9fin.

So what was private credit’s path through 2023 to become the financing solution of choice?

In the first quarter, while the middle market was active, large-cap private credit deals were in the minority, with Access Group’s add-on being one of the very few. Even this, however, found that cov-lite and low pricing nailed down in 2022 was no longer washing with its direct lending syndicate only six months later. 

But the same was true of the syndicated market. In fact, the merger of DSM Engineering and Lanxess into Enavliorhad to be privately placed, with, indeed, private credit. 

Meanwhile, the private credit secondaries markets were awash with activity as the denominator effect forced pension fund LPs to rid themselves of their private market stakes and the collapse of SVB Bank actually cranked this higheras calls for capital call facilities increased fund demand for liquidity.

Yet funds continued to fundraise, or, at least, try. It’s been a difficult year for all but the very largest, who continued to draw in funds from LPs happily. Investment banks, too, have been keen to get in on the private credit game, or, at least, expand their activities. 

And the private credit umbrella has continued to expand its reach, most visibly in 2023 into asset-backed lending with KKR’s high profile purchase of Paypal loans. 

With LBOs few in number, many sponsors decided to refinance their debt, often with portability clauses. A notable LBO-to-refinancing u-turn was that of BC Partners’ refinancing of VetPartners, but this large-cap 180 degree manoeuvre was accompanied by many more middle market refinancings in place of sales.

Those that have exposure to good credits have fought hard to stay in. Incumbent lenders have frequently put together staple financings to maintain their exposure. 

But the LBO deal flow has recovered. Large financings such as Adevinta have lifted the lid into the goings-on in a club financing, including how private credit funds behave when no single one can be the majority lender. And the sheer size of club financing has increased demand for unitranche selldowns, where smaller lenders can by a chunk of the large ticket that they could not afford in primary. A growing secondary market? 

Below are a handful of 9fin articles that are illustrative of the main themes, and more, of 2023: 

The denominator effect: Tesco pension fund puts private markets exposure up for sale (9fin)

Lender counsel designation: Lender designation loses grip amid regulatory scrutiny (9fin)

LBOs turning into refis: VetPartners wins fresh equity, deleveraging in refi (9fin)

Portability and its problems: Taking the Credit — Portability, volatility, and private debt’s complexity (9fin)

The sterling problem in IRIS: Private credit funds pitch competing sterling tranches to territorial existing syndicate (9fin)

Fundraising in 2023: Fundraising — doom, gloom, and a path out soon… please? (9fin)

Private credit creep: Private credit eats up BSL’s share of European LBO financing 2023 (9fin)

And, more private credit creep, this time into the world of SRTs: The most important deal(s) in the world (9fin)

A first foray into the Nordics: A tale of two credits — Can Nordic banks and private lenders live side by side? (9fin)

A growing secondary market: Taking the Credit — Private credit’s growing secondary market (9fin)

Private credit and P2Ps: Private credit propels UK public-to-private buyouts in 2023 (9fin)

And, of course, 9fin’s weekly European private credit pipeline, which lists all of the many deals coming to market. 

Happy Christmas everyone!