Loan defaults in 2023 are not predicted to match previous recessions, but a disproportionate amount will come from private equity-owned companies. Cov-lite structures should give them an upper hand in negotiations… Corporate loan defaults are slowly ticking up and are expected to rise to around 5% in the US and Europe during 2023 – still far below the peak of the global financial crisis.  Nevertheless, as growth slows and interest rates have increased, a wave of debt restructuring among private equity-backed companies is expected to build. Over the past 12 months, a growing number of private equity funds have been

Fund financing – which includes subscription lines of credit and NAV-based loans – is set to grow even as capital markets slow. A measured approach is advised… In a slower credit market, there is one form of debt financing that tends to accelerate among private equity funds.  Fund finance – which allows GPs to raise loans at fund rather than asset-level – has been around for years but spiked during the onset of the Covid-19 pandemic when sponsors were unable to raise debt for their portfolio companies and unwilling to make capital calls on their LPs.  With the cost of

Large pension fund investors have increased their allocations to private credit in memory of how the asset class performed post-global financial crisis.  Last year, private credit assets under management exceeded $1 trillion for the first time. Over the next five years that figure is expected to more than double.  On an earnings call at the end of October, Blackstone’s COO Jon Gray described private credit as a “long-term mega trend” within alternatives, which has been experiencing mega-trend status itself for almost a decade. Gray has reason to be positive: Blackstone’s Q3 earnings showed private equity shedding 0.3% in value during

The carnage in the syndicated bank market looks set to continue and the near-term liquidity of direct lenders is being squeezed. Private equity sponsors are looking for other levers to pull on their buyout financing… There is a problem in the bank market.  The leveraged buyouts, or LBOs, which have characterised private equity over the past decade have left banks on the hook for more than $50bn in financing commitments, which they underwrote in more stable times.  Loans that haven’t been pulled by sponsors or offloaded by banks at a steep discount are expected to be “puked into the market”