The Unicrunch — Behind the scenes of the private credit vs BSL faceoff

Anna Russi

16 August 2024•4 min read

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The ongoing swing

The pendulum constantly swings back and forth and depending on when you look either private credit is winning market share from banks or banks are reclaiming their piece of the corporate loan world.

Although this tug-of-war between the two markets has been going on for quite some time, we got a look behind the scenes at a couple of deals this week that went from one debt source to the other. One is M2S, which is turning to private credit after its attempt to raise an $870m loan in the broadly syndicated market struggled to gain sufficient buyside interest.

Direct lenders were not the only ones to score, though. Wesco Group, a paint and equipment distributor backed by BDT & MSD Partners, is pre-marketing a $755m broadly syndicated loan to refinance a private credit term loan, according to 9fin sources.

The trend earlier this year was that pricing compression in the syndicated markets forced direct lenders to offer tighter spreads and keep deals from being refinanced out of private credit.

One thing that may help private credit compete for market share is consolidation as major asset managers merge multiple BDCs into one platform, which they claim will enhance liquidity to help them fund more and bigger deals. Carlyle, Apollo and Blue Owl were three managers to merge their BDCs this quarter, as we covered in our Five Takeaways from Q2 BDC Earnings.

But as most leveraged credit investors know, there’s been a dearth of willing borrowers. That’s one reason another theme from BDC earnings was how funds like SLR Invesment Corporation and FS KKR Capital Corporation were increasingly looking at asset-backed and asset-based deals where opportunities were thought to be more plentiful and competition less severe.

As for which direction the private credit versus bank pendulum is heading next, check back when leveraged buyout volume truly picks up.

Buying and selling

Private credit secondaries transactions are still an emerging part of the market, as direct lenders are more used to holding loans rather than selling them. But, as competition heats up and distress increases, lenders may look for more liquidity and the strategy could expand.

Golub is the latest firm to decide to tap into secondaries transactions in the private credit market, having reportedly traded about $1bn of private debt via its own platform through the first half of the year.

Restructuring in private credit deals may cause direct lenders to want to offload private loans that may go bad.

There is, however, a concern among GPs that a growing secondaries market for private loans could diminish the premium returns that come along with illiquidity.

What’s more, not all GPs and LPs are thrilled about the increased transparency related to secondary trading and increased disclosure about their holdings.

But LP stakes themselves are already traded at times. And Golub tapping into loan secondaries signals that private credit is approaching a new stage of maturity.

This week on the 9fin platform

M2S looks to tap private credit lenders as BSL process stalls

Five takeaways from Q2 BDC earnings

Janus Henderson pushes into private credit with Victory Park acquisition

Blackstone, Ares, King Street buoy TeamHealth liquidity in latest refi

Investors plug in to live music as sector continues to rock (free to read)

What’s in market

M2S — pivoting to the private credit market after a failed attempt to raise an $870m loan in the broadly syndicated market

MRI Software — in the market for a repricing of its existing $2.5bn debt and is seeking a $250m incremental loan for additional M&A

Golden State Foods — in advanced stages of a sale process

Porter Airlines — looking to raise CA$250m in preferred equity to bolster its liquidity and pursue growth objectives

Wastequip — 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