Private Debt News Weekly Issue #36: Wall Street vs. Private Credit, Defaults Rise, and Niche Strategies Thrive
Banks Fight Back with Cheaper Loans While Private Lenders Double Down on Pre-IPO Deals and Specialized Financing
Welcome back to Private Debt News Weekly, your go-to for the latest developments shaping the $1.6 trillion private credit market. This week, Databricks secures $5 billion in private credit and bank funding, marking one of the largest debt raises by a tech firm. Meanwhile, the spotlight on private credit deepens as regulators and market participants grapple with the opacity of valuations and the rise of loan-to-own strategies. Elsewhere, new funds and hiring trends point to an evolving industry ready to tackle restructuring opportunities and niche lending strategies.
As private credit grows, so does its complexity, risks, and opportunities. Here's your detailed update.
Key Market Trends
Loan-to-Own Strategies Gain Traction
Private credit lenders are increasingly adopting loan-to-own models, signaling a shift in how they approach distressed borrowers.
What’s Happening: With senior loan default rates nearly tripling since 2022, private lenders are positioning themselves to gain ownership of defaulted companies rather than liquidating assets.
Operational Focus: Many credit firms are hiring portfolio operators, borrowing a page from private equity, to help steer troubled businesses back to profitability.
Example: Alacrity Solutions’ restructuring saw lenders like Blue Owl and KKR take control after rapid earnings deterioration wiped out equity holders like BlackRock.
Regulators Eye Valuation Transparency
Private credit’s lack of clarity in loan valuations is drawing increased scrutiny from regulators.
The Problem: Valuations often vary significantly between private credit funds, as seen in Alacrity Solutions’ case, where debt was marked at 98 cents on the dollar in June but later downgraded to as low as 82 cents by September.
Why It Matters: With limited public reporting and quarterly valuations, real-time financial risks often go unnoticed until it’s too late.
Regulatory Focus: Watchdogs like Moody’s are calling for stricter standards to avoid over-inflated valuations that could erode market confidence.
Sponsor Finance Set for a Comeback
Hiring for private equity-sponsored lending roles is expected to pick up in 2025 as PE deal flow rebounds.
What’s Driving This: PWC forecasts significant growth in buyout activity, which could re-energize private credit’s foundational role as a provider of leveraged buyout financing.
In Action: Apollo recently posted multiple sponsor origination roles with base salaries of up to $300,000, highlighting the demand for dealmakers.
Recent Deals
Databricks Secures $5 Billion in Private Credit and Bank Financing
In its largest debt raise yet, Databricks locked in $5 billion in funding from lenders including Blackstone, Apollo, and Blue Owl.
The Breakdown:
$2.25 billion term loan.
$500 million delayed-draw tranche.
$2.5 billion revolving credit facility from a consortium of banks.
Why It Matters: This deal underscores private credit’s ability to fund high-growth, pre-profit tech firms through annual recurring revenue (ARR) loans, a popular structure tied to stable revenue streams.
Usage: Proceeds will address employee tax liabilities, support AI product expansion, and fund international growth.
Ares Raises €30 Billion for European Direct Lending Fund
Ares Management closed the largest European direct lending fund to date, amassing €30 billion in capital.
By the Numbers:
€17.1 billion in equity commitments.
Average deal size of €128 million, targeting middle-market companies with EBITDA of at least €10 million.
What’s Next: Ares expects growth in the middle market as interest rates stabilize and businesses resume borrowing for expansion.
Fundraising Activity
Generali Acquires Majority Stake in MGG Investment Group
Generali Investments acquired a 77% stake in MGG Investment Group for $320 million, bolstering its presence in the US middle-market lending space.
What It Brings: MGG has $6 billion in assets under management, specializing in non-sponsored borrowers and bespoke credit solutions.
Strategic Significance: Generali aims to leverage MGG’s expertise to expand offerings for its insurance clients while boosting private credit’s role in its portfolio.
Allianz Raises €1.5 Billion for Secondary Market Credit Fund
Allianz Global Investors launched a €1.5 billion fund focused on acquiring private credit stakes in the secondary market.
Why It’s Important: Secondary market funds offer liquidity to private credit investors, addressing a key challenge for the asset class.
Job Market Trends
Private Credit Hiring Heats Up in Restructuring and Niche Lending
As the market evolves, private credit firms are staffing up in specialized areas.
Loan-to-Own and Restructuring Roles: Recruiters report strong demand for professionals skilled in managing defaults and operational turnarounds.
Example: Golub Capital is hiring for its direct lending workout group, offering salaries of up to $185,000 plus bonuses.
Special Situations and Asset-Backed Finance: Lenders are increasingly focused on high-margin niches like equipment leasing, aviation finance, and energy transition credit.
Example: Janus Henderson’s acquisition of Victory Park Capital highlights the growing demand for asset-backed lending strategies.
Sponsor Finance Hiring Resurgence: With PE deal flow expected to rebound, origination roles are poised for growth in 2025.
Forward Outlook
Loan-to-Own Evolution: Expect more restructurings where lenders take ownership stakes, blurring the lines between credit and equity investing.
Transparency Challenges: Calls for stricter valuation standards will grow louder as the lack of clarity continues to raise red flags.
Retail and European Growth: Blackstone’s ECRED fund reaching €1.5 billion highlights the untapped potential of retail investors in Europe, who could account for 23% of private credit allocations by 2028.
Middle-Market Momentum: As mega-deals saturate, funds like Ares’ €30 billion pool will refocus on middle-market lending opportunities.
Niche Strategies Dominate: Specialized lending areas such as energy transition credit and asset-backed finance will increasingly define competitive advantage.
Private credit’s rise continues, with bold moves in funding, hiring, and innovation shaping the industry. Stay tuned to Private Debt News Weekly for the insights you need to navigate this dynamic market.