Banks are increasingly muscling in on the $1.5 trillion private credit market in a move that further blurs the lines between private-lending funds and their traditional banking rivals.
(Bloomberg) — Banks are increasingly muscling in on the $1.5 trillion private credit market in a move that further blurs the lines between private-lending funds and their traditional banking rivals.
In recent weeks, Barclays Plc, Societe Generale SA and Deutsche Bank AG have all made concerted efforts to grab a slice of the lucrative corner of leveraged finance. Bloomberg News reported Thursday that Dutch lender Rabobank Group became a cornerstone investor for a new sustainable private-lending firm, Colesco.
“The banks do not want to miss out on the private credit boom, and clearly want to stay relevant for their clients,” said Floris Hovingh, head of European debt advisory at Perella Weinberg Partners.
Private debt has become an increasingly sought-after funding tool for buyout firms because the banks that dominate public debt markets pulled back last year amid a spike in interest rates and a drop in investor risk appetite. Banks are concerned about this shift as underwriting these types of loans — and then selling them to other investors — is a strong source of revenue for them.
In the past few weeks, at least four major banks made further strides into private debt, be that through balance sheet lending, tie-ups with established investors or raising third-party capital.
Societe Generale plans to raise a €10 billion private credit fund with Brookfield Asset Management Ltd. and Deutsche Bank said on Monday it had launched a dedicated private credit investment manager, DB Investment Partners.
Meanwhile, Barclays is finalizing a tie-up with AGL Credit Management to invest in private credit, with Abu Dhabi Investment Authority in talks to anchor the partnership’s first fund. The Rabobank venture will offer senior secured and subordinated debt to certain companies with earnings between €10 million and €100 million.
“Wall Street giants and European investment banks are looking to capture part of this opportunity via their asset management units, either by offering these services on balance sheet or by partnering with the alternative lenders,” said Ana Arsov, global co-head of banking at Moody’s Investors Service, adding that the ratings agency thinks banks will continue to expand such business opportunistically.
New Ventures
Competition between banks and private lenders to fund leveraged buyouts came to a head in the wake of the Russian invasion of Ukraine. Many issuers that would have previously been a shoo-in for leveraged finance syndications are now opting for private offerings instead.
The advent of the dual-track process, in which borrowers consider competing bids from both banks and direct lenders, illustrates how far credit funds have encroached on the traditional debt markets.
Read more: As Wall Street Chokes on Bad Buyout Loans, Rivals Seize Opening
Recent deals taken by direct lenders include a record-setting refinancing deal for Finastra Group Holdings Ltd. as well as new buyout financings for Dechra Pharmaceuticals Plc and Constantia Flexibles in Europe, New Relic Inc. in the US and Invocare Ltd. in Australia.
“It’s shocking how many more direct lending deals there are than syndicated deals,” said Eric Leicht, a partner at law firm White & Case. “Banks have wised up to the fact that the market has changed and they’re going to move to try to protect their interests.”
Deals
- Legends Hospitality is in talks with a group of private credit firms for a $1.85 billion debt package to finance its potential acquisition of venue and events management company ASM Global
- Thoma Bravo is in discussions with private credit lenders about arranging roughly $1 billion of debt financing for its planned acquisition of NextGen Healthcare Inc.
Fundraising
- Barings has launched an evergreen fund focused on direct lending in Europe that will offer investors greater liquidity than a typical closed-end fund
- TwentyFour Asset Management is set to become the latest investor to enter the burgeoning world of private credit, with a new Europe-focused fund launch planned for later this year
- Abu Dhabi wealth fund Mubadala Investment Co. has formed a strategic partnership with Blue Owl Capital Inc., committing $1 billion to the firm’s credit platform
- Josh Harris’s 26North Partners is starting a business development company as the firm ramps up its direct-lending operations
- Brookfield Asset Management Ltd. and Societe Generale SA plan to raise as much as €10 billion for a “high-quality” private debt fund
Job Moves
- Colin Atkins, who helps oversee Carlyle Group Inc.’s liquid credit business, is set to retire at the end of the year after almost two decades at the firm
- Blackstone Inc. made sweeping changes atop its credit unit as the private equity giant seeks to become a bigger lending powerhouse
- Blue Owl is formalizing plans to open an office and hire a team in Dubai to focus on capital raising
- Former Goldman Sachs Group Inc. partners Tom Connolly and Mike Koester have co-founded a new firm that aims to capture a slice of the burgeoning private credit market
Did you Miss?
- Fund Giants Muscle In on the $1.5 Trillion Private Credit Party
- Apollo Sees Scope for Private Credit to Work Alongside Banks
- Deutsche Bank Launches Private Credit Business for Investors
- Blue Owl Says $10 Billion Private Credit Loan Within Reach
- Barclays Said to Near Private Credit Partnership With AGL
- Blackstone Says Private Credit Is Coming for Asset-Based Debt
–With assistance from Paula Seligson.
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