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Banks reclaim $30bn in corporate debt from private credit sector

Banks have seized the opportunity presented by lower interest rates to recapture corporate debt deals from private credit funds, refinancing around $30bn in private debt through broadly syndicated loans so far this year, according to a report by Bloomberg.

The report cites research from Bank of America Corp as highlighting that banks have made a significant comeback after losing ground in recent years with more than 70 refinancing deals year to date on the back of lower interest rates as companies seek to cut borrowing costs.

This shift has intensified the competition between banks and private credit lenders, who are vying to finance a limited number of mergers and acquisitions. The prospect of potential interest rate cuts has made the syndicated loan market more attractive, with borrowers aiming to lower their interest expenses.

Several companies, including K2 Insurance Services, Circor International Inc, and Alegeus Technologies, have recently transitioned from private credit to broadly syndicated loans to reduce costs. Circor’s new leveraged loan could decrease the company’s interest rate margin by approximately 2.25 percentage points, according to reports.

For businesses that initially secured high-cost private loans, these savings are substantial. Vista Equity Partners’ Alegeus, for example, had an initial private loan with a margin of 8.25 percentage points over the Secured Overnight Financing Rate (SOFR), with the company subsequently seeking new pricing in the range of 5 to 5.25 percentage points over SOFR in a broadly syndicated deal launched last month, offered at a discounted 98 cents on the dollar. This move is projected to generate $75 million in interest savings over the life of the five-year loan, based on Bloomberg’s estimates.

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