Private Debt News Weekly Issue #53: Europe’s Moment, Continuation Creep, and the Rating You Can’t Trust
Private credit doubles down on Europe, rolls old loans into new funds, and starts calling out the elephant in the ratings room
Follow me on Twitter. Interested in sponsoring Private Debt News? Discounted rates available for early sponsors—get in touch here.
Welcome back to Private Debt News Weekly, where the news is global, the optimism is regional, and the skepticism is catching up fast.
This week, private credit’s top brass gathered in Berlin for the SuperReturn conference—and the message was clear: Europe is back. A mix of rate cuts, stimulus, and post-tariff divergence from the U.S. has turned the continent into the market’s current obsession. Apollo says it could deploy $100 billion in Germany alone. Franklin Templeton is buying Apera. Everyone’s got Berlin fever.
Meanwhile, continuation funds are exploding, as managers scramble to return cash without exits. With M&A still stalled, LPs are getting liquidity by rolling aging portfolios into new wrappers—sometimes with fresh fees and recycled capital.
And in the background? The private credit ratings system is creaking. One small firm is assigning thousands of investment-grade ratings with barely two dozen analysts. Some insurers love it. Everyone else is starting to ask whether “BBB” really means anything anymore.
Here’s what mattered this week.
Key Market Themes
1. Europe Becomes the Deployment Trade
The dominant message out of SuperReturn was geographic: the U.S. is uncertain, but Europe is investable. The ECB has cut rates. Germany passed a €1 trillion infrastructure bill. Valuations are lower. And Trump’s tariff noise has reminded investors why regional diversification matters.
Apollo’s Jim Zelter said the firm could deploy $100 billion in Germany over the next decade. Franklin Templeton’s acquisition of Apera brings its European AUM to $87 billion. Permira, BC Partners, and Brookfield all echoed the shift: the post-2020 U.S. trade unwind is now Europe’s capital inflow opportunity.
Why It Matters:
This is no longer just a tactical shift. The largest global credit firms are treating European mid-market lending as the next structural pillar of their platforms. If deal flow follows sentiment, expect Europe to overtake the U.S. in sponsor-backed direct lending by volume in 2025.
2. Continuation Funds Are Quietly Taking Over
No M&A, no refinancings, no exits. So what’s a manager to do? Roll the loans.
Continuation vehicles—where firms transfer loans from one fund into another with new LPs—are booming. Ares and Antares did $1.2 billion. Twin Brook, Benefit Street, and TPG are all in market. GP-led secondaries now account for more than 50% of private credit secondaries, up from less than a third last year.
Most funds offer existing LPs a chance to cash out (often at or near par), while new money comes in to buy the assets and potentially reinvest. Many of the portfolios are aging, with several “watchlist” credits buried in the mix.
Key Dynamic:
Continuation funds are a short-term solution to a long-term liquidity problem. They work—but they defer real exits, recycle carry, and can muddy IRRs. They also give managers optionality to remark portfolios without public scrutiny.
3. The Ratings Problem Is Getting Too Big to Ignore
This week’s deep dive into Egan-Jones Ratings Co. laid bare the risks of rating arbitrage. The firm has graded over 3,000 private credit deals this year—most with a staff of just 20 analysts. Many of those ratings came in at BBB or above, despite debt structures that imply junk-level risk.
Insurers like the grades—investment-grade paper means lower capital charges. But major asset managers including Apollo, BlackRock, and Carlyle explicitly exclude Egan-Jones from their accepted ratings lists. Bloomberg found multiple cases where defaults occurred within weeks of a BBB rating.
The Systemic Risk:
When capital relief depends on ratings from firms that aren’t trusted by the largest allocators, it’s only a matter of time before someone gets burned. The SEC and NAIC are watching—but the gap between “rated” and “real” is widening fast.
4. Apollo Doubles Down on Bank Flow
Apollo has accepted over $2 billion in bank-sourced deals from Citigroup this year, part of its $25 billion co-lending partnership. It’s also bringing on former MDs from BofA and Goldman to deepen origination coverage and tighten integration with Wall Street pipelines.
The firm is essentially institutionalizing bank offload risk—taking flow deals that banks can’t hold on balance sheet and syndicating them through Apollo’s credit platform.
Takeaway:
Private credit is no longer just a substitute for banks—it’s becoming a fee partner. The deals are getting larger, more standardized, and less bespoke. For some managers, the alpha is in the pipeline—not the pricing.
5. The Asset-Backed Pivot Is Real
Investment-grade, asset-backed deals are becoming the new face of private credit. Apollo, Blackstone, Carlyle, and KKR are all pouring capital into asset-backed finance (ABF)—everything from mortgages and credit cards to AI data centers and infrastructure.
At SuperReturn, managers said ABF is safer, scale-ready, and more durable in volatile macro cycles. Blackstone called it a “global mega-trend.” Ares, TCW, and Brookfield are all expanding ABF sleeves in their flagship credit vehicles.
Why This Matters:
In a world of fewer LBOs and higher rates, direct lending is losing momentum. ABF offers high-grade paper, strong collateral, and repeat issuance—and may reshape the center of gravity in private credit over the next five years.
6. Private Credit's Halo Is Starting to Flicker
Beyond the optimism, a new tone is emerging: doubt. Top allocators like Yale and Harvard are trying to unload billions in stale PE and credit assets. Cliff Asness called private markets a “costly illusion.” And Richard Ennis said returns are “ordinary” at best—just wrapped in expensive wrappers.
Even the most bullish managers are shifting messaging: Apollo is pitching investment-grade. Ares is skeptical on tradable credit. Sixth Street says large-cap lending may not be worth the risk anymore.
Undercurrent:
The private credit brand is strong—but performance dispersion is rising. LPs are starting to separate franchise platforms from fast followers. For the first time in a decade, capital may not chase the pitch.
Deals of Note
Franklin Templeton to acquire European direct lender Apera Asset Management (AUM: $5.7B)
Allianz in talks to acquire credit manager Capital Four
Carlyle to invest $1.3B in Trucordia through its global credit platform
Blackstone backs $1.5B loan to support the Baker Tilly–Moss Adams merger
Shapoorji Pallonji closes $3.4B private credit deal—India’s largest ever
Forward Outlook
Continuation funds will keep rising—but LP patience is finite. At some point, investors will demand real exits, not repackaged loans.
Europe is the battleground of 2025. Whether capital sticks depends on sourcing, currency hedging, and execution—not just sentiment.
Egan-Jones is now a liability. If ratings drift continues unchecked, insurance-driven private credit exposure could trigger regulatory blowback.
ABF is the product of the next cycle. Less sponsor dependency, more collateral, and a clear liquidity path—it’s what LPs want right now.
Investor cynicism is creeping in. Smart platforms will lean into transparency, defend underwriting, and stop hiding behind the “private” label.
Final Takeaway
Private credit isn’t collapsing—it’s adapting.
But beneath the momentum, a new tension is rising: capital is being deployed, but conviction is getting harder to sustain.
Continuation funds roll forward. Europe lights up. Ratings get stretched.
The system still works—but only if you ask the right questions.
Stay sharp.