Competition — not the faltering economy or ongoing geopolitical issues — is the biggest challenge for private lenders. That’s because the asset class is becoming so popular, according to a recent survey by a law firm Proskauer Rose. Healthy levels of dry powder continue to be the biggest driver of deal flow, and lenders believe borrowers rate the speed of decision-making as one of the best benefits of private credit, the survey finds. .
Private equity sponsors, in particular, appreciate that private lenders offer “a single solution to buy, sell and lend”, noted Evan Palenschat, a Chicago-based partner of Proskauer. “As competition intensifies, sponsors expect better terms from their lenders.”
The appeal of this booming asset class has not gone unnoticed, as new companies enter the market every quarter.
“There has been a growing interest in private credit from lenders and borrowers over the past decade. As public markets have seen dramatic swings in recent years, new entrants – lenders and borrowers – have entered the space, attracted by the resilience of the industry,” said Stephen A. Boyko, Co-Chairman of Private Credit at Proskauer. “As the macroeconomic environment continues to change and syndicated markets remain volatile, we expect to see more interest in private credit than ever before, particularly in the US, UK, continental Europe , Canada and Asia.”
Simply put, private credit allows businesses to raise capital from private lenders, who can then demand interest payments and/or impose covenants and other guarantees to secure the loans. This asset class has multiplied over the past decade, according to the law firm’s 2022 Trends in Private Credit report released this month.
black stone observes the same trend. In a recent report, he noted that borrowers enjoy “the benefits and flexibility of working with a private lender”, and that lenders can also “act as partners” for borrowers, which can be a plus in difficult market environments.
Blackstone and Proskauer foresee increased interest in private credit in the future. The market has proven its dynamism and private lenders are clearly riding the crest of a wave. More than 80% of respondents to Proskauer’s poll said they were currently in the process of raising a debt fund, and more than 90% plan to raise funds this year. Even though deal activity is down from 2021, there’s plenty of private equity money to drive M&A activity across all industries, and there’s enough funding capital to support these transactions. Overall, private lenders are particularly keen to invest in business services, healthcare, software and other technology offerings.