Private Debt News Weekly Issue #37: Banks Fight Back, Fundraising Falls, and Private Credit Evolves
Wall Street Undercuts Private Credit on Pricing, Regulators Tighten Scrutiny, and Mega-Funds Dominate the Next Phase of Growth
The battle for buyout financing dominance continues as Wall Street banks fight back against private credit, leveraging lower rates to reclaim deals. Meanwhile, private credit fundraising declines for the third straight year, even as Ares raises €2.2 billion for its latest European strategy. Regulatory scrutiny intensifies on valuation transparency and the growing use of payment-in-kind (PIK) debt, while private lenders continue to dominate specialized lending and pre-IPO financing.
As private credit adapts to an evolving landscape, here’s your breakdown of this week’s most pressing trends, deals, and risks shaping the $1.6 trillion industry.
Key Market Trends
Private Credit vs. Wall Street: The Buyout Battle Intensifies
Private credit lenders have dominated buyout financing, but investment banks are fighting back with aggressive pricing on syndicated deals.
Key Deals:
Ardonagh Group: Morgan Stanley, BofA, and JPMorgan led a $1.2 billion refinancing, replacing private credit debt.
Wagamama Holdings: Replaced £330 million in private credit with a high-yield bond.
Circor International: Switched to a $650 million syndicated loan, saving 2.25% in borrowing costs.
Why It Matters:
Private credit lenders offer flexibility and speed, but banks are undercutting pricing to reclaim market share.
The broadly syndicated loan (BSL) market is seeing a resurgence as CLO demand fuels cheaper financing options.
Private Credit Fundraising Declines for the Third Consecutive Year
Private credit fundraising fell to $167 billion in 2024, marking its third straight annual decline.
Fundraising Breakdown:
Direct lending remains the top strategy but faces growing competition.
Special situations funds accounted for 14.55% of capital raised, reflecting rising credit stress and restructuring demand.
North America led the market, securing $114 billion in new private credit commitments.
What’s Next?
If interest rates decline, sponsor-backed deal activity could rebound, potentially boosting private debt fundraising in 2025.
Investors are shifting allocations to private equity, as PE returns overtook private credit in Q3 2024.
Regulators Zero in on Private Credit Transparency & PIK Debt
Global regulators are increasingly concerned about opaque valuations and growing leverage risks in private credit.
Key Concerns:
The IMF plans a deep dive into PIK debt, which now accounts for a rising share of credit fund portfolios and could mask financial stress.
Germany’s BaFin regulator will scrutinize insurers’ exposure to private credit risk, ensuring proper oversight of direct lending and alternative assets.
Valuation discrepancies remain a major issue, with Alacrity Solutions’ debt marked at 98 cents on the dollar in June, only to be downgraded to 82 cents months later.
Why It Matters:
Private credit lacks the same transparency as public debt markets, raising concerns about systemic risks and inflated asset values.
Regulators could push for new disclosure rules, reshaping how private debt funds report valuations.
Recent Deals
Ares Raises €2.2 Billion for Evergreen European Private Credit Fund
Ares Management closed its latest private credit fund, targeting wealthy investors in Europe and Asia.
Fund Highlights:
Launched under the Ares European Strategic Income Fund (AESIF) platform.
Backed by JP Morgan Private Bank for distribution.
Invested in 230+ portfolio companies within its first year.
Why It’s Important:
Wealthy individual investors are becoming a key capital source for private credit.
Ares aims to tap into retail appetite for higher-yielding private debt strategies.
CVC Looks to Expand in Private Credit
CVC Capital Partners is looking to acquire a US-based private credit firm, expanding its alternative investments business.
Strategic Move:
CVC already acquired Glendower Capital for secondaries and DIF Capital Partners for infrastructure.
Expansion into private credit could position CVC as a major player in direct lending.
Private Credit Funds Backing Pre-IPO Tech Firms
With the IPO market still sluggish, private credit is stepping in to fund late-stage tech firms.
Recent Deals:
Blackstone led a $4 billion loan for Clario, a clinical trial software company prepping for an IPO.
Databricks raised $2.75 billion from direct lenders to provide employee liquidity ahead of its public debut.
What’s Driving This Trend?
Tech firms are delaying IPOs but need liquidity for employees and growth.
Private credit fills the gap with ARR-based financing that banks typically don’t offer.
Forward Outlook
Banks vs. Private Credit Battle Will Escalate
Expect more aggressive pricing from banks to lure borrowers away from direct lenders.
Private credit’s edge remains flexibility and higher leverage capacity.
Private Credit Fundraising Challenges Continue
While mega-funds like Ares continue to thrive, smaller funds will struggle to raise capital.
Direct lending will remain dominant, but special situations and distressed funds will gain traction as credit stress rises.
Regulatory Scrutiny Will Intensify
With BaFin, the IMF, and other watchdogs investigating private credit valuations, transparency rules could be on the horizon.
Expect stricter oversight on PIK debt and leveraged loan practices.
Pre-IPO Lending Will Keep Expanding
Private credit firms will continue funding high-growth tech firms as IPOs remain delayed.
Blackstone, Apollo, and Blue Owl are leading the charge in late-stage private financing.
M&A in Private Credit Set to Accelerate
CVC’s push into private credit suggests more firms will expand via acquisitions to gain scale.
As private credit consolidates, smaller managers may be forced to merge or specialize in niche lending.
Final Takeaway
The battle between private credit and banks is heating up, with investment banks aggressively competing for buyout financings. Meanwhile, fundraising remains tough, regulatory pressure is mounting, and niche strategies like pre-IPO lending are thriving. With consolidation on the horizon and increased oversight looming, the private credit market is entering its next phase of evolution.
Stay ahead with Private Debt News Weekly—your definitive source for insights, deals, and trends shaping private credit.
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