Private Credit News Weekly Issue #84: Covenants Disappear, PIK Gets Rebranded, and Banks Win at 275 Bps
Private lenders adopt covenant-lite terms to compete as middle-market CLO limits jump to 25% from 16% while Neuberger pitches "strategic PIK" and Relativity saves $12.3 million annually by refinancing
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The safeguards are disappearing. Permira negotiated covenant-lite terms from Blackstone, Goldman Sachs Asset Management, Macquarie, and Apax Credit on multiple deals. Middle-market CLO covenant-lite limits jumped to 25% from 16% in 2021. German insurance broker Global Gruppe got offers for €1 billion in covenant-lite loans before the sales process stalled.
“In 2026, I expect some private credit lenders will increasingly agree to looser or no covenants in order to win business,” said Ben Davis of Eversheds Sutherland.
Meanwhile, JPMorgan led Relativity’s $720 million leveraged loan refinancing at 275 bps over benchmark, saving the company at least $12.3 million annually. The deal refinanced out Blackstone, Apollo, Blue Owl, and Ares. Banks are winning with pricing private credit can’t match.
Neuberger’s Susan Kasser is rebranding the problem. “I think there’s bad PIK and then there’s ‘PIK on purpose,’” she said, calling deferred interest a strategic feature the syndicated market can’t offer. PIK across the industry rose from 7% to over 13% of investments. Kasser maintains a 0.01% loss rate with 3% PIK while seeing $10 billion monthly in opportunities.
Ares raised $7.1 billion for its debut secondaries strategy as deal volume heads toward $50 billion within two to three years from $6 billion in 2023. BlackRock pulled in $342 billion in Q4 after spending $28 billion on acquisitions, pushing assets to $14 trillion. Apollo traded $6.7 billion of private credit last year and is opening trading on a $3.5 billion xAI chip financing at par.
Key Market Themes
1. Covenant-Lite Becomes Middle Market Norm
Private credit firms are adopting covenant-lite terms that look much more like typical bank loans as they compete for large borrowers. Permira, along with Canada Pension Plan Investment Board, financed the acquisition of services provider JTC on covenant-lite terms from lenders including Blackstone, CVC Credit, and Singapore’s GIC. Permira also secured covenant-lite terms on a loan for the buyout of UK education software firm The Key Group from lenders including Goldman Sachs Asset Management, Macquarie, and Apax Credit.
The trend is accelerating. Middle-market CLOs have steadily boosted the amount of covenant-lite loans they’ll accept to 25% in Q1 2025 from about 16% in 2021, according to S&P research. Lenders on the largest US deals have been gradually giving up covenants even before 2023, with terms weakening as transaction size increased.
Traditional private credit carries maintenance covenants that impose limits on leverage tested regularly. As soon as a borrower breaches limits, a lender can seek equity injection, demand more collateral, or force asset sales. But now direct lenders are striking deals on the same terms as banks.
Warning Signs
“At the end of the day, nothing beats proper covenants and contractual protections when things get difficult,” said Amin Doulai, a partner at King & Spalding. “Some lenders will tell you that their fundamental protection is understanding the credit and maintaining the direct line into management teams. But when a company starts to underperform and it’s defaulting on its loans, you’ll find that the direct line isn’t open anymore.”
2. Neuberger Pitches “Strategic PIK” as Competition Intensifies
Susan Kasser, Neuberger Berman’s head of private debt, is offering “strategic” payment-in-kind to stand out from the crowd. “I think there’s bad PIK and then there’s ‘PIK on purpose,’” she said on the Credit Edge podcast, describing the feature which allows borrowers to defer interest as something the broadly syndicated loan market can’t offer.
Kasser remains fiercely protective of her 0.01% annualized loss rate and lower-than-typical PIK rate of about 3%. Her team consistently saw $10 billion of opportunity per month in the second half of last year. “Our pipeline is just bigger,” she said, adding the firm is declining more deals than ever.
PIK use has been creeping up across the industry, with investments featuring PIK as a percentage of all investments valued rising from around 7% in Q3 2021 to over 13% in Q2 2025, according to Lincoln International data.
Market Defense
Kasser welcomes questions from investors on whether creative, customized lending raises risks. But she argues Neuberger’s borrowers are more interested in lending pace, flexibility, and certainty than temporary deferrals of interest. “The structural advantages and the appeal of direct lending isn’t going away -- just the borrowers will need to decide, ‘do you want to pay the premium for that or not?’”
3. Banks Win Refinancings with Aggressive Pricing
Legal software firm Relativity refinanced its $720 million first-lien term loan in the leveraged loan market, allowing the Silver Lake-backed firm to lower its interest rate to 275 bps over the benchmark. JPMorgan led the refinancing, which is expected to save Relativity at least $12.3 million per year.
The original private unitranche loan was provided by Blackstone Private Credit Fund, Apollo Debt Solutions BDC, Blue Owl Credit Income Corp., and Ares Capital Corp. Arrangers tightened pricing to 99.75 cents on the dollar compared with the original pitch to investors of 99.5 cents.
Last month, banks led by Goldman Sachs helped refinance more than $2 billion of private debt for fire protection services firm Pye-Barker Fire & Safety. More private loans are being refinanced in the leveraged loan market as borrowers seize on lower rates and appetite from yield-starved investors.
Competitive Pressure
About $37.7 billion of broadly syndicated loan deals have been refinanced into private credit so far this year through November, compared with $28.2 billion of private credit refinanced into the BSL market, according to JPMorgan and KBRA DLD data. But the trend is shifting as banks become more aggressive on pricing and terms.
4. Secondaries Market Explodes with $7.1 Billion Ares Raise
Ares collected $7.1 billion for its debut private credit secondaries strategy, including $4 billion in equity commitments from investors and a $1 billion joint venture with Mubadala. The remainder is a mix of capital raised in affiliated vehicles and anticipated leverage.
Deal volume in private credit secondaries is expected to surpass $50 billion within the next two to three years, up from $6 billion in 2023, according to Evercore data. Private credit secondaries, once a quieter corner of the broader market for secondhand stakes dominated by buyouts, have become one of its fastest-growing segments.
More managers are raising funds dedicated to the strategy. Coller Capital raised $6.8 billion for its second private credit secondaries strategy last year. HarbourVest Partners has launched two separate vehicles to back secondary deals. Pantheon is pitching investors its latest credit funds and a new evergreen vehicle for institutional investors.
Growth Drivers
“Managers are utilizing continuation vehicles to return capital back to those investors in hopes that they will recycle those dollars into the new fund,” said Dave Schwartz, head of credit secondaries at Ares. The firm expects large LP portfolios to come to market this year, and the pipeline for continuation funds is strong.
5. BlackRock’s $28 Billion Bet Pays Off in Record Flows
BlackRock pulled in $342 billion of total client cash in Q4, pushing the firm to a record $14 trillion of assets. The company took in $15.6 billion in liquid alternative and private assets in the quarter. Investors added $268 billion on a net basis to its long-term investment funds, including $181 billion to its ETF business that now has $5.5 trillion overall.
Operating expenses hit $5.3 billion in Q4, up 48% year-over-year, driven in part by onboarding staff from newly-acquired Global Infrastructure Partners, Preqin, and HPS Investment Partners. Larry Fink shelled out $28 billion to buy the trio in an historic acquisition spree aimed at transforming BlackRock into one of the largest firms in private credit and infrastructure markets globally.
Private markets revenue for the full year roughly doubled to $2.4 billion from 2024. Full year employee compensation and benefit expenses rose 20%, primarily reflecting higher bonus payouts.
Strategic Goals
“You’ve heard us say it’s not that the big are getting bigger, it’s that the best are getting bigger. Size and scale are outputs of performance,” BlackRock CFO Martin Small said, outlining a $400 billion goal in gross private markets fundraising through 2030. The firm is targeting new products marketed to wealthy retail investors and defined-contribution plans such as 401(k)s.
6. Apollo Opens Trading on $3.5 Billion xAI Chip Financing
Apollo is trying to open up trading on a $3.5 billion chip financing deal supporting Elon Musk’s xAI. The asset manager has told other lenders it’s willing to buy more of the debt at par. The debt was used to fund xAI’s access to Nvidia graphics processing units and other data center-related infrastructure.
Last year, Apollo traded over $6.7 billion worth of private credit. The firm’s trading effort has been mainly focused on investment-grade private credit, a subset that could swell the entire market to $40 trillion. Apollo, run by CEO Marc Rowan, has been the steward of such an effort and has launched a marketplace to trade private debt.
The debt package was for a special purpose vehicle established by Valor Equity Partners, one of xAI’s key backers, to help xAI rent chips for its Colossus 2 data center site in Memphis. The Valor vehicle closed a roughly $5.4 billion deal to buy the chips, including Nvidia’s GB200 GPUs, and leased them to xAI. Apollo led the $3.5 billion debt portion, though other lenders also own smaller slices.
Capital Intensity
xAI has been tapping Wall Street, venture capital firms, and others for billions over the past year to fund its growth. The company recently announced another $20 billion investment in Mississippi and earlier this month raised $20 billion in additional equity from investors including Nvidia, Valor, and Qatar Investment Authority. It raised $10 billion across equity and corporate debt earlier in 2025.
7. Fundraising Momentum Continues Across Strategies
RRJ Capital, a private equity firm founded by a former Goldman Sachs banker, raised $1.1 billion via the first round of financing for its debut private credit fund focusing on investments in Asia Pacific. KKR closed its second Asia-focused credit fund late December, securing $2.5 billion in total investments. Sixth Street has raised €3.75 billion from investors to target financing opportunities in Europe’s direct lending market.
Guggenheim Investments closed a $250 million vehicle that will invest in its private debt strategy. The fundraising comes as private credit firms expand globally and diversify into new strategies including secondaries, asset-backed finance, and specialized sectors.
Geographic Expansion
The Asia-Pacific focus from RRJ and KKR reflects growing opportunities in the region, though private credit still faces stiff competition from traditional lenders. Asian borrowers are highly price-sensitive, often opting for bank loans that are typically 200 to 400 bps cheaper than private debt.
Deals of Note
Covetrus - CD&R and TPG in talks with Blue Owl and others to line up at least $2.5B of debt to refinance roughly $2B existing debt and fund potential acquisition, pricing expected at least 500 bps over benchmark
xAI - Apollo opens trading on $3.5B chip financing at par supporting Elon Musk’s AI startup, part of $5.4B Valor SPV deal for Nvidia GB200 GPUs
Relativity - JPMorgan leads $720M leveraged loan refinancing at 275 bps over benchmark, saving at least $12.3M annually, refinancing out Blackstone, Apollo, Blue Owl, Ares private unitranche
Beaufort - Adams Street Partners leads private credit financing of as much as $400M to back acquisition by Capitol Meridian Partners and Stellex Capital Management, joined by MidCap Financial and Hamilton Lane
Leisure Time Products - Fortress provides $150M senior secured term loan to Aterian Investment Partners portfolio company
Polarise - Macquarie lending as much as €117M to German data center infrastructure startup
Acclime Holdings - Warburg Pincus secures commitments for $400M facility to support investment in corporate services provider
Health-care software platform - Ares-led group of private credit lenders upsize loan for acquisition by Veritas Capital
The Reality Check
Covenant-lite limits jumping to 25% while Neuberger calls PIK “strategic” and Relativity saves $12.3 million by refinancing into banks tells you everything. The structural advantages that justified private credit’s premium are being traded away deal by deal to win business.
When borrowers can’t pay interest with cash, calling it “PIK on purpose” doesn’t change what it means. When Permira gets covenant-lite terms from every major lender, those aren’t protections anymore. They’re marketing talking points. And when banks price 275 bps inside where private credit can compete, the value proposition shrinks to speed and certainty. Those matter, but not at 200+ bps.
Ares raising $7.1 billion for secondaries targeting $50 billion in volume reveals where smart money sees returns. Not in originating new loans at compressed spreads with loose terms. In buying existing loans at discounts. That’s price discovery, not deployment pressure.
BlackRock’s $28 billion acquisition spree and $400 billion fundraising goal through 2030 shows the endgame. Private credit is becoming product distributed through 401(k)s, not performance chased by institutions. Apollo trading $6.7 billion and building a marketplace means liquidity infrastructure the asset class needs but also proves these loans can trade. Once they trade, they get marked. Once they get marked, the illiquidity premium disappears.
The covenant erosion, PIK rebranding, and bank competition aren’t cyclical adjustments. They’re permanent repricing. Private credit competed by offering structure banks couldn’t. Now it’s competing by matching terms banks already offer. That’s not evolution. That’s commoditization.
Superb analysis of how private credit is essentialy trading away its structural edge to compete on volume. The covenant-lite jump to 25% alongside the "strategic PIK" rebrand is wild—you're right that this is commoditization not evolution. I remeber pitching to a firm that touted their covenant protections as the whole moat, but if everyone's matching bank terms at a 200+ bps premium that value prop just evaporates. Once these loans trade publicly and get marked, the illiquidity premium dissapears for good.