During periods of volatility, some folks see opportunity, and direct lenders may be among those folks.
Amid the current backdrop of broader instability—and a BSL market that has ground to a halt—the probability that private credit lenders will step up to bridge a lending gap is not only possible, but also what has happened historically.
Private credit made a name for itself in the years after the Great Financial Crisis when it plugged a hole left by banks that had come under regulatory scrutiny and could not lend. The asset class solidified its place as a viable source of financing in times of crisis when the loan market froze up in 2022 and during the regional bank trouble in 2023.
Last week the broadly syndicated market logged a week of no new-issue launches for the first time in two years, save for seasonal breaks at the end of summer and end of the year. Already this week, two deals, ITG Communications and Cardinal, have been pulled from syndication due to market conditions.
Private credit has always been rooted in relationships. In periods of dislocation, even if spreads are meaningfully lower in the broadly syndicated loan market, relationships play a key factor to getting a deal done.
“Many BDCs talk about the power of incumbency in their portfolios,” said Meghan Neenan, head of non-bank financial institutions at Fitch Ratings. “If the sponsor knows the private credit provider will be there to support the growth over time and work with them during periods of dislocation, there is some loyalty that develops there over time.”
