The Big Winners From Private Credit’s Boom Are Becoming Clear

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(Bloomberg) — A gap is forming between the rich and the poor in the rapidly expanding private credit asset class.

Intermediate Capital PLC this week closed a €15.2 billion ($16.8 billion) European direct lending fund, the largest such capital pool ever secured in the region. It follows Ares Management Corp.’s record $34 billion, including leverage, for a similar strategy in the U.S. in July.

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Meanwhile, firms such as Fidelity International and Boca Raton-based Pauline Capital have halted early direct lending in Europe this year after struggling to make it work. The contrasting fortunes suggest that the boom in the $1.7 trillion private credit industry is now in the hands of fewer and fewer credit managers.

“If you want to talk to the largest companies, you need the largest pockets of capital,” said Rob Seminara, head of Apollo Global Management Europe, at the IPEM conference in Paris last week. “We will continue to see the largest companies grow in size because they are more connected to the largest companies in the world. Private credit is a real enabler for them.”

Giants in the space, such as Blackstone, Apollo and Goldman Sachs Group Inc.’s asset management unit, are expanding their franchises into so-called “one-stop shops” for debt financing, with the ability to offer financing across the capital structure. That plays to their advantage when it comes to relationships with borrowers, Seminara says.

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More distinctive

Investors have become more discriminating about asset managers because a prolonged period of high interest rates has created a double-edged sword for credit funds, where higher returns can be made but there’s greater risk of stress for the companies they lend to. As competition for capital intensifies, many mid-sized fund managers are struggling to raise money for new funds, people familiar with the matter said.

Market participants also expect performance across lenders to begin to diverge as each manager’s portfolio is tested.

“As markets become more difficult to navigate, investors are choosing to back direct lending funds with good track records, scale and the ability to invest through credit cycles,” Matthew Vigier, co-head of direct lending at ICG, said in an interview with Bloomberg News.

In fact, money raised by funds aimed at institutional investors, including asset managers and pension funds, is expected to be flat this year, according to data compiled by PitchBook. The data shows that about $91 billion was raised by 59 private credit funds in the first half of 2024. During the same period last year, 68 funds closed with $98.9 billion.

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“Private credit asset managers are transforming the corporate debt landscape, taking market share from commercial banks and the syndicated lending market, but also reaching new borrowers that these traditional intermediaries had deemed risky,” wrote Jared Elias of Harvard Law School and Elizabeth de Fontenay of Duke University Law School in a July paper.

“As a result, a small elite club of perhaps a dozen asset managers has emerged that is playing an increasingly important role in institutional finance.”

Review of the week

• Global bond yields fell to their lowest level in two years this week on concerns about slowing growth in major economies and increasing expectations of interest rate cuts.
• The junk-rated debt market continues to flood with issuance, with borrowers tapping into a hungry investor base for riskier deals, including dividends and leveraged buyouts.
• Banks are buying back their tier 1 bonds at unprecedented levels, helped by regulatory clarity and a buyer base eager to absorb a record influx of new issuance. Meanwhile, Australia’s banking regulator has proposed that lenders eliminate the use of tier 1 bonds in capital requirements, becoming the first jurisdiction to phase out the securities that were eliminated after the collapse of Credit Suisse last year.
• Shares of some of China’s most closely watched property developers posted their biggest declines in months after home sales data confirmed a deepening property market slump.
• JPMorgan Chase & Co. is leading a historic pullback from preferred stocks as Wall Street banks reshuffle their balance sheets in preparation for dramatically loosened new rules.
• Hewlett Packard Enterprise Co. tapped the U.S. investment-grade bond market to help finance its pending acquisition of Juniper Networks Inc. Also in the high-grade market, Blue Owl Capital Inc. sold $1 billion of debt, and Onoc Inc. sold bonds less than two weeks after saying it was buying a rival and a controlling stake in a different company.
• In the U.S. leveraged loan market, chicken finger chain Raising Cane’s Restaurants LLC sold a $500 million deal after pricing the debt tighter. Separately, Goldman Sachs Group Inc. is meeting with leveraged finance investors to gauge their appetite for Wayfair debt, and Formula 1 has outlined a $2.55 billion package to help finance owner Liberty Media Corp.’s takeover of the MotoGP World Championship.
• Goldman Sachs Group Inc. is selling a large risk transfer tied to a roughly $3 billion portfolio of leveraged loans.
• In the $1.3 trillion world of collateralized loan obligations, hedge fund Chatham Asset Management is launching a platform to manage and invest in the securities, while Palmer Square Capital Management is launching a pair of exchange-traded funds that will buy collateralized loan obligations and other assets.
• TC Energy Corp. will compensate buyers of Aspen Investments’ C$1 billion ($735 million) bond deal that failed to close.
• Discount retailer Big Lots Inc. said it has filed for bankruptcy protection and plans to sell the company’s assets and ongoing business in a court-supervised process.
• Retailer J. Crew is seeking investors with a hefty yield of more than 11% and key investor protection on a $450 million term loan as it aims to refinance debt.

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On the move

• Bank of America Corp. has named Rashan Reed head of U.S. fixed income, currency and commodities sales. Reed joined the bank in 2001 and has spent most of her career in mortgage and secured securities sales.
• Adam Piekarski, co-head of real estate credit at BDT & MSD Partners, announced he is leaving the firm to start his own investment firm focused on commercial real estate debt.
• Om Pandya has joined Clifford Chance as a partner in the Capital Markets practice in Houston.
• Long Corridor Asset Management Ltd. has appointed Kenny Wu, former head of China credit research at hedge fund BFAM Partners (Hong Kong) Ltd.

—With assistance from Kat Hidalgo and Francesca Veronesi.

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