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Private Credit 

Jemima Denham

Welcome to Taking the Credit, 9fin’s weekly observations on the issues affecting the European private credit market. Find out more about what we do for private credit.

As we think about the wind down of this year and what to expect in 2025 for private credit, no better time to ask experts their insights than at 9fin’s first live event in London.

Market professionals gathered on Thursday morning to listen to a panel discussion, which explored findings from our European Private Credit Review Q3 24, as well as to catch up with the 9fin team and fellow direct lenders.

The likes of market consolidation, banks jostling for what would have been private credit loans when syndicated markets were muted, and spread compression were a few of the areas top of mind for the panel’s conversation. As per usual and perhaps most importantly, we covered whether a strong M&A deal flow will actually materialise in 2025.

Our panellists included: Amit Bahri, co-head of European direct lending at Goldman Sachs, Manon Mendez, principal at Blackstone Credit, Mark Wilton, head of European investments at Corinthia Global Management, and Christoffer Hansson, investment director at Eurazeo.

“There is a broader trend in alternatives where allocators want to consolidate the number of GPs they’re working with, and we’ve seen that accelerate over the past few years,” said Goldman’s Bahri.

Data from 9fin’s Q3 report showed fundraising year-to-date has skyrocketed to an average size of $1.75bn per fund, compared to $595m in 2023, with a smaller number of vehicles piling up much more capital than in previous years.

“It’s a scale game to get access to deals,” Bahri said, “because sponsors and borrowers want to speak with people who can provide them with a solution.”

With funds elbowing each other out the way for quality assets and LPs being more choosy with their allocations, most would say it’s a tough time to break in as a new kid on the block.

But for a lender like the mint-new private credit team at Corinthia, apparently there is still room for opportunity.

“We celebrate when we see the megafund raises,” said Corinthia’s Wilton. “It demonstrates the fact private credit is a core allocation in investors’ alternatives strategy.”

“What [investors] are looking for is differentiation within their portfolios,” Wilton added. “As such, the private credit firms I see struggle are often those that have not clearly defined their role or specialism within the market.”

Fundraising soaring this year has been coupled with a trend we’ve seen in debt tickets increasing in Q3 — the average deal size was €255m, up 15% from an average deal size of €220m for the same period in 2023.

“What is even more interesting is that the share of private credit in large-cap deals has increased over the last year, despite this segment of the market being more exposed to competition from capital markets,” noted Blackstone’s Mendez. “This is because large sponsors are continuing to choose private credit over liquid options, driven by the benefits it offers to their portfolio companies.”

Competition between private credit and banks has materialised into pressure on pricing and terms this year. 9fin’s Q3 data showed an average spread of 540bps on large cap private credit deals compared to an average 404bps on syndicated loans, a small premium compared to historical standards.

“I see that the BSL market compresses margins in that segment,” said Eurazeo’s Hansson. “On the other side, you have banks who hold their own LBO credit on their balance sheet."

And yet competition also has a positive side for private credit. “The BSL market opening is good for activity and investment,” said Wilton. “To drive deal flow, volume and activity levels, you need a functioning BSL market to fund the private equity buyers and corporate buyers of those mid market businesses.”

Additionally, the markets are less and less divided and increasingly capable to find ways of working together with hybrid-style deals. “This year we have seen a few mega LBOs where a borrower combines a syndicated senior tranche with a private credit provided junior capital,” said Bahri. “That has been a major theme for us to invest behind this year in Europe with a number of high profile large transactions.”

Panellists also made the case for private credit as a competitive solution when it comes to take-private (P2P) deals.

“Banks are often not as competitive in take-privates or complex corporate carve-outs,” said Mendez. “Due to the extended timeline between commitment and closing, banks can be unwilling to assume pricing risk, leaving it to the sponsor or issuer. Private credit, on the other hand, offers pricing certainty, flexibility, and speed of execution – all of which are critical for take-privates.”

Eyes are now on the private equity firms who are expected to finally let go of quality assets in 2025.

“As inflation abates, interest rates are coming down, EV is coming up, that will close the gap between sellers and buyers and would logically mean private equity is starting to sell part of their portfolios,” said Hansson. “Private equity funds have been holding onto their assets, putting them into continuation vehicles. The best assets have not really come to market”.

Around 90 private credit deals in market at the end of Q3 pointed to a healthy pipeline for early next year, despite a dip to 56 closed transactions in Q3 compared to 62 in Q2 this year.

“If you look at M&A as a percentage of global market capital, it is at a 15 year low,” Bahri said. “Some of the confidence in public markets should spur on more M&A activity.”

“Whilst a cloud of uncertainty remains, I foresee increased deal flow and opportunities for 2025,” Wilton added.

Markets in the UK & Ireland have had a particularly busy week and coverage at 9fin has seen a flurry of updates on financing processes.

We reported that Apollo’s direct lending arm is providing financing for One Equity Partner’s dividend recap of UK civil engineering firm Amey.

Apollo and CVC Credit have joined as new lenders alongside upsizing incumbents on a €750m acquisition facility for International Schools Partnership, pricing at Euribor+525bps and total net leverage sitting at 6.5x.

Barings is set to finance Inflexion’s acquisition of Irish company Village Vets, which the private equity firm acquired from its founders earlier this year. The firm generates an EBITDA of less than €5m.

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