So the deluge that was hoped for is yet to arrive. What gives?

Some hints can be found in Antares Capital’s 2024 credit market outlook survey published this week, which offers a glimpse into how 138 PE sponsors and 60 Antares borrowers are feeling about markets. On the macro front, 78% of respondents expected a slow pace of US economic growth in the next year, but only 10% expected a recession. The soft landing narrative has become dominant, but it hasn’t quite been reflected in deal flow.

When it comes to their own performance, the majority of borrowers expect to see moderate to strong growth in organic revenue and EBITDA, which is in line with the expected macro backdrop of steady growth.

On the sponsor side, 58% of respondents said that pressures facing their portfolio this year are about the same as they were last year, which was not a particularly easy one considering the massive slowdown in exit opportunities that sponsors had to contend with and are still facing.

But sponsors are hoping that that will turn around, with nearly 50% of respondents expecting a modest to sharp rise in the deployment of their investment dollars into LBOs in 2024 compared to 2023. However, 30% expect it to remain flat on the year, suggesting that some sponsors don’t expect this year to be much better than last in terms of M&A. The first half was not very reassuring.

Part of the disconnect between sponsors is evident in the survey, with PE firms reporting a higher conviction that they would buy a company in the second half of this year than that they would sell one: about 80% of sponsors reported a 50%+ likelihood that they’ll buy a new portfolio company in 2H 2024, but only 56% reported a 50%+ likelihood that they’ll sell more companies in 2H 2024 than they did in 2H 2023.

So sponsors are a lot more ready to buy companies than they are willing to sell, which makes sense considering that they’ve got pressure to deploy capital (they’ve raised a lot of it in the past few years) creating pressure to buy companies, which may have cheaper valuations due to the impact of higher rates.

But of course, that impact of higher rates is exactly why there is less conviction when it comes to selling, since sponsors don’t want to let go of their companies for lower prices than they hoped for.

If PE firms want to get the M&A wheels turning again, some people will have to sell. Perhaps it will take a rate cut, or a few, for valuations to return to levels that sponsors are broadly comfortable with.

But for now, despite the desire to get dollars out the door, they are not there yet.

Touchdowns and term loans

Believe it or not, the first NFL preseason game kicks off in two weeks. With that in mind, we turn our attention to the world of sports investing — before the season inevitably crushes our hopes and dreams and makes us want to avoid the topic.

Private credit investors have found things to cheer for in the growing space of sports investing, as we reportedearlier this week.

Direct lenders’ PE counterparts were first to the space, with high-profile investments in team ownership beginning a few years ago as many of the major leagues began to allow PE minority ownership of franchises. Private credit activity increased along with the flurry of PE investment that followed league rule changes, opening the door for broader private investments in sports.

For example, Ares Capital provided second lien debt to the NHL’s Ottawa Senators in 2021, along with a $500m financing package for Chelsea last year. Elsewhere in the European football (aka soccer) world, we saw Premier League club Crystal Palace receive a private loan from MGG earlier this year to fund player trading and day-to-day operations.

In many ways, the US sports sector is just beginning to open up to private investment money, with the majority of major leagues only recently budging on rules regarding ownership structures, and some holdouts — notably the NFL — still continuing to ban PE ownership of franchises in any capacity.

However, that could be changing, as league commissioner Roger Goodell recently stated that they hope to set new policies by the end of the year, starting with a 10% PE ownership cap that could increase with time.

This is highly anticipated by investors because the NFL generates more revenue than any other major sports league, by a long shot, and is coming off a stellar year that saw increases in both game viewership and attendance.

And there are tailwinds — the Taylor Swift effect, the continued growth of recently legalized sports betting, and lucrative streaming partnerships coming from shifting broadcasting rights deals all seem to be working in the league’s favor, and the broader sports industry in general.

That’s why some credit investors have recognized that direct investment in a sports franchise’s ownership is not the only way to get in on the industry’s growth, as ancillary businesses will benefit from the broader increase in sports engagement.

Some examples of these companies include those that support fan engagement, subscription services for coaching, concession operators, and apparel. Investors we spoke to ultimately said that they liked the sports industry because related businesses tend to have highly predictable recurring revenue streams, partially attributed to the loyalty of fans who return on a weekly, monthly, and yearly basis.

So, if you’re a credit investor, stop doing research for that six-leg parlay that you think will finally hit this time, and start doing diligence on a sports-related business — it’ll likely be a better bet.

This week in 9fin

Private credit’s wide world of sports

All Star Auto works through auction

East Bay pension fund to start investing in private credit

Illinois pension fund approves search for private credit manager

Audax Private Debt provides Rock Dental $75m mezz financing

What’s in market

All Star Auto Parts — the recycled auto parts supplier is on the block with an EBITDA around $30m. The auction is being run by BlackArch partners and lenders have offered leverage in the roughly 5x-5.5x range to back a possible LBO

RXBenefits — the company is looking to refinance its existing debt with a roughly $900m private credit loan and possibly issue a dividend to shareholders

Wastequip — the company is looking to refinance its existing syndicated debt facilities in the private credit market

Priority Power — the energy management services company is on the auction block, marketed on $85m LTM EBITDA. Warburg Pincus has expressed interest

Beckett Collectibles — HPS and Freedom 3 backed the company back in 2022 as it underwent a digitization of its services, but is now looking to refi the existing $250m debt package

8th Avenue Food & Provisions — private credit firms are in talks to refinance the company’s existing BSL facilities

From around the web

Blue Owl to Buy Atalaya in Deeper Push Into Private Credit (BBG)

Wall Street's battle with private credit hits fever pitch in M&A game (Axios)

Banks risk coming late to the private credit party (FT)

Oak Hill, OneIM Strike $5 Billion Private Credit Partnership (BBG)