This comes after months of warnings from everyone from PIMCO to JC Flowers in observation of insurance company exposure to private credit, then ratings agencies’ statements, from Moody’s warning on private credit to Standard & Poor’s push to rate private credit issuers.

But perhaps the BofE et all should be equally concerned about private credit’s exposure to the first-loss tranches of these very banks.

Private credit is happily taking the first loss on gargantuan significant risk transfer (SRT) sales as JP Morgan and crew seek to get them off their balance sheets. Essentially, JP Morgan is marketing a series of SRT securitisation deals on a portfolio of around $25bn, of which the bulk is said to be US investment grade lending.

To cuts its capital requirements, JP Morgan sells the junior risk of this portfolio off to the private credit market, keeping the low-risk senior portion. However, the very size of these transactions leaves only a handful of eligible buyers. Private credit being one. More on this here, and in front of our paywall, but essentially, exposure works both ways.

Santa Claus is coming to town

But no one seems to have told the private credit-funded European LBO market, which is making merry in a big Black Friday-style pre-Christmas deal bonanza. A few factors feed into this — a cosier financial outlook with rate hikes pausing and inflation falling, pent-up demand from low LBO activity all year, and pressure on sponsors and private credit funds alike to return some capital to their patient and long-suffering LPs is all driving dealmaking.

This appetite is manifesting itself in a few ways. We’re seeing the gradual return of a wider variety of sectors to an LBO market characterised only by resilient tech and medtech businesses. The sale of UK logistics travel business TAG, or attempts to get unitranches into restaurants (The Restaurant Group) offer two examples.

Not every sector is succeeding, of course. This week we’ve witnessed at least five sales processes pushed back to 2024, including Paine Schwartz Partners’ sale of Hendrix Genetics and Ardian’s sale of AD Education. Participants nonetheless expect to see a greater number of cyclical businesses hit the LBO block in 2024.

The re-entry of banks is another sign of appetite. According to 9fin sources, UK banks are working on a dividend recap deal — for the first time in a very long time. Banks have also carried out their first UK P2P underwrite of 2024, on KKR’s acquisition Smart Metering System. More on this to come.

Terms and leverage, though, seem to remain under control despite the deal boom. Dealmakers appear enthusiastic but cautious, with leverage levels even on popular businesses like Kooi Camera Surveillance still not pushing more than 4.5x. As usual, there are some exceptions, with Sogelink netting €390m off an EBITDA of €55m. But leverage is still conservative compared to valuation multiples.

There are 45 deals in the European private credit pipeline, plus an additional two closed and five pushed back to 2024. Click here for the full named and detailed list of details, or subscribe to 9fin Private Credit by emailing subscriptions@9fin.com.