And according to new data from Configure Partners, an investment bank focused on the lower and core middle market, lenders have reason to believe that the wait might finally be over.

Configure’s Private Credit Quarterly report for Q3 2024 shows that the market is both getting busier and that LBO financings are returning. The investment bank has 76 deals in pipeline currently, with 49 of them being LBO deals versus 27 refinancings.

Not only is this Configure’s second busiest quarter since at least 2021, the third quarter also marks the first time LBOs have outpaced refis since the third quarter of 2022. The ratio of LBOs to refis (64%/36%) is also the most favorable to LBO financings since the second quarter of 2022.

“We're hoping that it's a signal that the log jam of sponsor-to-sponsor trades is about to break,” K.T. Taratus, a vice president at Configure, said on a webinar breaking down the report. “And that a very busy 2025 LBO environment is on the horizon.”

Lender friendly

The private credit market also may be getting friendlier to lenders than it had been recently. Around a quarter of deals that Configure is involved in now come with three covenants, versus last quarterwhere half of deals had two covenants and the other half only had one.

Spreads are also widening in the core and lower middle markets, according to the report, even if they still remain tight by historical standards.

“The minimum spread from Configure’s survey shows the second consecutive quarter of [a] sub 600 average as par mentioned,” Taratus said. “Which is further evidence of an aggressive lending environment.”

However, a closer look at the data shows that wider spreads are gaining steam. Loans with spreads between 600bps-650bps saw a three percentage point rise over last quarter, while loans with spreads between 700bps-750bps saw a four percentage point rise in the same period.

In the data below it is worth noting that most of the private credit deals this quarter are still pricing at sub-500bps. Last quarter this captured mostly ABL deals and that is the same this quarter.

The overall average spread for Q3 deals climbed from 532bps to 559bps, suggesting a shift to wider spreads broadly.

Source: Configure Partners

Continuing trends

While these indicators do suggest that things are turning in the market, it is worth noting that the wholesale change the market is hoping for is still not fully realized

Year-to-date, refinancings still outpace new LBOs by 52% to 48% in Configure’s business. It seems like that is likely to change if some of the pipeline outlined above is completed before year end. If not, this will be the first year since at least 2019 that refinancings contributed more to activity than LBOs.

Another trend is that fundraising continues to be dominated by those at the top. While it has been a trend for a while that the largest funds dominate the market, the divide continues to grow.

Around 41% of debt capital raised by private funds is in vehicles that raised $5bn or more, while another 47% of funds raised are in vehicles of $1bn or more, according to Configure’s report.

Bigger players — see the recent $8.5bn fundraise of Silver Point as another example of a mega fund — hold almost 90% of the capital that will be deployed in the next few years. What that monopoly of the market will mean remains to be seen.