Private Debt News Weekly Issue #29: Restructurings Rise as Giants Double Down
Market Leaders Push Expansion Despite Rising Restructurings and Regulatory Scrutiny
Private credit’s rapid expansion faces its first real test this week, as signs of distress emerge alongside unprecedented institutional commitment to the sector. While BlackRock advances an $11-12 billion acquisition of HPS Investment Partners and Blackstone raises $22 billion for direct lending, several major portfolio companies are entering restructuring talks.
This tension between growth and risk is reshaping the industry, evidenced by Citigroup and Apollo’s new $25 billion lending partnership - just one of several deals marking the increasing convergence of traditional banking and private credit. The market’s resilience, built during years of low rates and steady growth, now faces scrutiny as yield dynamics and credit quality move to center stage.
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Market Stress and Restructurings
Distress signals emerge as major deals face restructuring headwinds
BlackRock’s Alacrity Solutions enters talks with its $1 billion unitranche lenders, including Antares, Blue Owl, and KKR, marking the latest significant restructuring in private credit. Goldman Sachs, the mezzanine lender, is also involved in discussions. The development represents Blue Owl's second major deal to face difficulties in recent months, following Pluralsight's restructuring where Vista Equity Partners wrote off its entire stake.
European market shows parallel stress signals amid mounting concerns
Carlyle hands over luxury retailer End Clothing to Apollo, while Pemberton assumes control of personnel provider Univativ. European restructuring advisors report significant uptick in inquiries, suggesting potential wave of situations in coming months. Market participants note documentation and lender dynamics creating more complex workout scenarios than traditional bank deals.
Industry leaders and regulators sound alarm on hidden risks
Davidson Kempner's Patrick Dennis warns that low default rates mask underlying issues, citing increased use of "amend and extend" tactics. SEC's Andrew Dean identifies valuation risks as "core issue", while ECB's Elizabeth McCaul emphasizes growing systemic importance of private credit market. Several large managers have responded by enhancing valuation procedures and third-party verification processes.
Fundraising and Strategic Growth
Blackstone leads record fundraising wave amid market evolution
Raises $22 billion for new direct lending fund, bringing total direct lending platform to over $123 billion. The hybrid structure combines elements of drawdown and evergreen funds, targeting institutional investors for large-cap and middle-market transactions. Total credit platform now reaches $432 billion, reflecting broader shift toward private credit strategies.
Ares demonstrates continued momentum with substantial growth
Reports 17% AUM growth to $464 billion in Q3, with $64 billion raised through September. Almost 40% of Q3 fundraising dedicated to direct lending in US and Europe. CEO Michael Arougheti projects record fundraising year in 2024, targeting mid-$80 billion range despite increased market competition.
Strategic Moves and Market Evolution
BlackRock advances transformative HPS acquisition talks
Emerges as sole active suitor in discussions valuing HPS at $11-12 billion, with deal completion targeted by year-end. Acquisition would push BlackRock's alternative assets beyond $500 billion, following recent $12.5 billion GIP purchase. Move reflects CEO Larry Fink's aggressive push to dominate private markets as HPS brings over $100 billion in credit assets and established direct lending expertise.
Wall Street giants embrace private credit through strategic partnerships
Apollo CEO Marc Rowan predicts convergence of public and private investment-grade debt within 18 months. Citigroup's $25 billion Apollo partnership signals banks' shifting approach to private credit competition. Goldman Sachs reports $140 billion in private credit assets through asset management business, with CEO David Solomon emphasizing "unique combination" of syndication and investment capabilities.
Geographic expansion accelerates as firms target new markets
ZCG commits $2 billion to Saudi Arabia, including $1 billion direct lending fund launch in early 2024. Piper Sandler and BC Partners form alliance targeting $500-billion annual volume, including synthetic risk transfers. Moves reflect broader industry push into new regions and product types as core markets become increasingly competitive.
Industry Perspectives and Market Outlook
Yield dynamics and market structure spark strategic debate
Churchill's Randy Schwimmer projects sustained higher yields, with middle-market loans offering up to 12% and margins of 500-550 basis points over SOFR. Expects benchmark rates to remain above 3%, maintaining attractive return profile. Default concerns tempered by strong underlying business performance despite rate environment.
Industry leaders diverge on future market structure
Blue Owl's Marc Lipschultz maintains strong stance against increased liquidity despite 50% AUM growth to $235 billion, arguing "private markets are private for a reason." Contrasts with Apollo's push for convergence with public markets. Ares reports 68% revenue growth while emphasizing importance of manager selection in increasingly competitive landscape.
Product Innovation and Distribution
Retail access expands through innovative structures
JP Morgan partners with Ares to distribute €1 billion European Strategic Income fund, returning 4.8% since February. Minimum investment of €25,000 targets broader investor base while maintaining institutional quality. Management fee structure includes 1.25% base plus performance components, reflecting evolution of retail-oriented products.
Traditional asset managers build private credit capabilities
Janus Henderson expands through Victory Park Capital acquisition and National Bank of Kuwait partnership, focusing on emerging markets opportunities. Strategy emerged from extensive internal review identifying private credit as key growth area. CEO Ali Dibadj emphasizes "thoughtful approach" to expansion versus opportunistic acquisitions.
Semi-liquid structures gain traction despite challenges
Blackstone's hybrid fund structure demonstrates innovation in balancing liquidity needs with investment constraints. Industry grapples with regulatory requirements while maintaining private credit returns. Focus on high-quality assets and strong documentation to support potential secondary trading development.