More recently, private credit has been pursuing liquid strategies, that is, investing alongside the the banks, albeit in a different tranche, in a so-called ‘hybrid’ deal, and entering another hallowed underwritten space - the public to private deal - as sole underwriter, or, in the case of the Dechra deal, en masse. 

It’s changing sponsor appetite that has allowed this, according to one large private credit fund. “Large cap private equity had tough terms for us pre-dislocation. Now, if you go to these large PEs, they are much more open to discuss our terms.”

Because here’s the kicker: “We are very happy to work with larger borrowers, but we want control over docs, diligence and structure, so it needs to be on our terms.” What the private credit fund in question doesn’t want is a deal where “banks have a billion euros to underwrite, this gets reduced to a few hundred million with some private credit anchors, but a JP Morgan has done the diligence and dictated the terms.”

Sidecar facilities 

No, private credit wants a separate vehicle: “a tranche next to the main syndicated facility but with its own protections and structures.” 

This has been floated in the past as a separate tranche of the TLB, but the private credit fund in question wants something even more differentiated. “Not different tranches of the TLB, but a separate facility all together. We will work with banks but under separate cover, in separate facilities.”

This could be known as a ‘sidecar’ facility or ‘side pocket’, but it essentially draws a deeper line between the TLB underwritten by the banks then distributed to the syndicated market, and the private credit tranche.

And thus far, banks and sponsors have been broadly open to it. According to a second large private credit fund pursuing strategies in this space, all the ‘smart’ banks get it. “This approach resonates with the smarter banks — Morgan Stanley, UBS, Deutsche Bank, Barclays, who understand the need for it.”

But is this talk of tighter terms and documents all hot air, or will we in reality see a convergence? A ‘syndification’ of docs, if you will? It is of course very difficult to get a glimpse into the private documents of a private credit fund participating in a traditionally syndicated space — until Dechra. 

And, lifting the lid of the Dechra documents, the first impression is that it’s a cov-lite deal — in a deal held entirely by private credit funds and in a market where lenders have typically been able to ask for just one covenant. 9fin will be releasing an analysis of these docs in due course.

So ‘syndification’ is real — and it’s an active strategy of private credit funds who can operate at scale. But this week, something odd happened. Wellspect, a carve out of the incontinence products unit from Dentsply Sirona, is going the syndicated route. The deal has around €500m debt, and was running a dual-track process with private credit funds and banks looking — in recent times this has resulted in a private credit deal. What changed?

“In a small deal like this where leverage isn’t too high, syndicated is cheaper,” said a 9fin source. 

Is this an anomaly, or the beginning of a watershed back to syndicated debt? Well, it all depends on the LBO pipeline. Initially expected to rebound in Q2, it looks like it may have to wait until the end of the summer. 

To quote 9fin’s LevFin wrap: “M&A cross-border deals could provide around €1bn of loans supply come summer, with another €400m to €500m loan deal currently being prepared. Further pipeline action may come from P2P deals, with corporate auction processes continuing to unravel in the face of divergent valuations between buyers and sellers.”

Platformisation 

News this week that investment manager Blackrock had acquired European venture lender Kreos Capital is no surprise in a market where GPs are increasingly seizing the opportunity to widen their skillset. Venture debt, essentially leveraged-off a company’s ARR rather than its EBITDA, is a specialist type of lending for companies not yet making a profit.

Prior to this acquisition, US asset manager Monroe Capital acquired venture debt specialist Horizon in February. “We think we're kind of in the early stages of that broader trend, more strategic or more platform type relationships between GPs and LPs…there's also we think a lot of synergies for our investors, for them to be able to get access to more product, more diversification, while not needing to add a new manager to do that,” said a source familiar with the deal.

And it’s not just venture debt that is attracting the interest of larger players. It’s a whole host of strategies. Asset-backed lending is another. 

A couple of months ago, 9fin reported on asset manager Kartesia’s tie up with an ABL specialist as an example of how private credit funds are seeking to differentiate themselves and broaden their offering at a time when dry powder is at an all-time high.

TPG Capital’s acquisition of Angela Gordon, and, further back in time, Nuveen’s acquisition of Arcmont and Franklin Templeton’s acquisition of Alcentra are good examples of consolidation in the sector.

Other strategies — pure debt and debt instruments, equity or quasi equity, impact funds, credit opportunities, special situations and mezzanine, as well as infrastructure and real estate debt are all attractive.

Altarea and Tikehau Capital’s tie-up to provide a real estate platform is another such example. 

“We’re batting them away,” an ABL specialist told 9fin at the SuperReturn International conference in Berlin this week, speaking of acquisition approaches from larger players. However the fund in question was not interested in being acquired. “We’re making far too much money doing what we’re doing [in ABL].”

The advantages of ABL are summed up nicely in alternative investment provider Castlelake’s recent whitepaper, which argues that the market for ABL is underpenetrated and in the early stages of expansion just as direct lending was post GFC. 

“The current volatility in the securitisation market is acting as a catalyst in what Castlelake believes will ultimately prove to be a secular shift toward asset originators seeking private asset-based lending solutions,” said the paper.

Interestingly, the Financial Times reported one day ago that the BT Pension Scheme, with its £40bn war chest, is looking at making a private credit acquisition, another example of a large LP entering the private credit space. At the time of writing, 9fin is aware a large US insurer is in the market for an ABL acquisition. Watch this space. 

Retailisation 

It’s not new news that wealthy individuals represent a huge investor opportunity for private credit. And, for funds at the SuperReturn International conference in Berlin, the matter of creating retail funds is key. 9fin reported Arcmont’s planned launch of a retail fund at the end of the year 2023, but this was by no means the only fund looking at this space.

Expanding the existing institutional investor base is also key. Insurance LPs represent a mammoth and growing opportunity for private credit, and exploring ways of bringing more of them in board and in greater cash volume is another preoccupation.

Private credit funds consulted by 9fin are actively exploring all kinds of ways to do this, including through Solvency II reporting for their LPs, right through to Solvency II-compliant vehicles. If you’re an insurance specialist you can expect a fat pay packet at the moment to work with private credit fundraising teams.

Elsewhere in the market, the planned LBO of MediaSchool in France rumbles on with three bidders still in the mix, WhiteStar Asset Management made an approach to Abrdn’s private credit outfit, Proskauer Rose has done another deep dive, this time on the PIK toggle, the European Investment Fund has seeded a senior private credit fund in Italy and HPS closes a giant $10bn fund. 

Barclays. Deutsche Bank, Morgan Stanley and UBS did not respond to requests for comment. 

Missing something? Want your deal in here? Email me josie@9fin.com