“Most lenders want to hold onto good assets,” a large-cap private credit fund manager told 9fin.

“I don’t think there’s too much controversial or new about this type of activity – just for 18 months there wasn’t a real syndicated threat.”

9fin has flagged private credit repricing since the beginning of 2024 but, in Europe at least, repricing has been all talk and no action. This is mainly because many direct lenders are still protected by non-call and soft-call periods that tend to be longer and stricter (18-24 months) than those in the BSL market (as low as six months), hence the rain of repricings in BSL.

However, at the large-cap end of the private credit market, terms have always better resembled those of the BSL market, and this is where some borrowers are able to get away with a repricing. The key, according to the source, is leverage. If a loan done at 6x or 7x leverage at Euribor+625bps de-levers down to 5x leverage, then it makes sense for borrowers to ask for a repricing.

“In the current market a 5x levered business would not price at 625bps,” said the source.

In these circumstances, private lenders can either propose a dividend recap which will take the leverage back up to the higher level — justifying the comparatively higher marign — or reprice.

Private credit repricing has, until now, lagged BSL repricing, but with call periods rolling off, it may catch up.

There is also an argument that it may be worth repricing during those call periods. The sponsor paying the penalty of non-call (a make-whole premium) to reprice, or at least the 100bps fee of the ensuing call 101 should the repricing offer wider gains than the 100bps.

In return for stretching lower on pricing, direct lenders often ask for another one or two years of call protection, to deter borrowers from refinancing their loans with competitors, according to 9fin reporting.

They’re also pushing for portability language in credit agreements, which can help lenders retain their relationship with a borrower even if it is sold to a new owner, sources added.

However, in some cases, they also sweeten terms to avoid a repricing. There are many ways in which a private credit loan is more restrictive for borrowers, not least in its fees, its call protection periods, covenants and restricted payment baskets. Opening some of these up could avoid the short-term pain of a repricing.

9fin most recently wrote about private credit repricing here and here.

The golden age of private credit

Meanwhile, recent fundraises from Arcmont (among many others) only highlight the paucity of fundraising in the mid and lower-mid market, where private credit funds are facing a chicken-and-egg dilemma.

As 9fin reported, new entrants have to get a few deals done first to show a track record with which to attract investors. However, with scarce proprietary situations in the market, unknown managers have to compete against established players in LBOs, refinancings and recapitalisations.

And some private credit managers have yet to make even their first deal.

The visual impact of the squeeze on smaller funds can be seen in the chart below, where the larger funds appear to be sitting on the smaller ones.

European private credit pipeline

It’s safe to say there are many, many situations just waiting to come to market without quite pulling the trigger. Until that happens, the European private credit pipeline is only the tip of the iceberg on what is out there. For those that have mandated advisors or sent out their IMs, you can see them here or email subscriptions@9fin.com.

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