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Private Credit 

Josie Shillito

It’s not just anecdotal. Margins in private credit headed south in 2023, and the fundamentals for this downward pressure are growing in 2024.

As 9fin’s full year analysis of 2023 reminds us, Italian business management software provider TeamSystem, Adevinta, GGW, and French engineering software firm Sogelink all priced with spread of under 600bps in Q4 2023. 

And, with news that energy consultancy veteran of the syndicated markets, Veritas-backed Wood Mackenzie, is refinancing its private credit debt in the BSL market, the question we’re all asking is — should private credit proactively reprice its debt to ward off BSL reverse enquiries? And if so, what to?

According to market sources, pressure on private credit lenders to reprice their loans is coming from sponsors. In the case of Wood Mackenzie owner, Veritas, it is comparing its existing unitranche spread of SOFR+675bps to a BSL spread of S+375-400bps. 

However, as the year rolls on, it could be private credit funds themselves proactively offering up a repricing. As 9finwrote in early January, call protection is the factor. Last year’s private credit deals tended to come with non-call or soft-call protection, with roll-off anniversaries set for 2024. For deals inside their non-call period, there is no need to accelerate a repricing.

“Although there are a few [private credit] repricing conversations taking place, these are sponsor-driven and none have actually happened yet,” commented a market source.

This could of course change by the end of the year. According to 9fin reports, at least 10 deals in the European syndicated markets are repricing. In fact, January repricing flow has already outpaced 2023’s total repricing activity with more than €5bn of volume this month versus €2.1bn last year when only three repricing deals landed.

This heaps even more downwards pressure on private credit, whose spread to BSL looks expensive in comparison.

However, as noted by 9fin, not every private deal can refinance in the BSL markets. Most have no track record of BSL, many are not big enough, many more would not meet the minimum rating. 

Wood Mackenzie, which has decades of history in the syndicated markets, is something of an outlier. Its private credit debt, not its prospective BSL debt, was, perhaps, the blip in an otherwise unblemished syndicated run.

Despite the threat of a BSL refinancing, fundraising, at least among those large funds with a strong track record, continues apace. This week, Arcmont announced that its European Direct Lending Fund IV and associated vehicles had attracted total investable capital of €10bn. 

The alternative investment manager claims this makes one of the largest ever direct lending funds raised in Europe. And they may be right. Although alternative investment manager Ares also claimed in its October earnings call that it is targeting €15bn capital raised and €5bn leverage for its European direct lending fund, Ares Capital Europe VI.

Meanwhile, in the US, Bain Capital has closed a middle market credit fund with over $1bn in commitments, and Benefit Street Partners has closed a $4.7bn, fifth, flagship private credit fund.

But as 9fin is shortly to report, these giant fundraises by large-cap private credit funds do appear to be at the expensive end of middle market fundraises. Data gathered by 9fin will show the fundflows and that squeeze on the already-squeezed middle. Watch this space. 

The results are in, and Goldman Sachs comes in as top lender for 2023 large-cap deal count, with Ares at the top for full-year deal count, full-year middle market (deals under €50m EBITDA) and Q4 deal count. To get the drilldown, and more, hurry over to 9fin’s full year 2023 review now published. 

The European deal pipeline shows an increasing number of situations that tread the line between a private credit and a BSL financing. Deals of €100m EBITDA that did not come to market in 2023 are flowing in over Q1 2024, in some cases with a territorial incumbent lender.

To read our intel on the situations that should matter in Europe, from €5m EBITDA upwards, click here or email subscriptions@9fin.com.

Taking the Credit — Dicing with repricing

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