(Bloomberg) — A divide is emerging between the rich and the poor in the fast-growing private credit category.
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Intermediate Capital Group Plc this week completed a €15.2 billion ($16.8 billion) European direct loan fundraising, the largest pool of capital of its kind ever secured in the region. It follows the record-breaking $34 billion raise in July, including leverage, by Ares Management Corp. for a similar U.S. strategy.
Meanwhile, firms including Fidelity International and Boca Raton-headquartered Polen Capital have shuttered their early European direct lending operations this year after struggling to get them off the ground. The contrasting fortunes are a sign that the boom in the $1.7 trillion private credit industry is being enjoyed by fewer and fewer credit managers.
“If you want to talk to the biggest companies, you need the biggest pockets of capital,” Rob Seminara, head of Europe at Apollo Global Management Inc., said last week at the IPEM conference in Paris. “We’re going to see bigger managers getting bigger, because they’re much more relevant to the world’s biggest companies. Private credit is a real enabler for them.”
Industry giants such as Blackstone Inc., Apollo and the asset management unit of Goldman Sachs Group Inc. are scaling their franchises into so-called “one-stop shops” for debt financing, with the ability to offer financing across the entire capital structure. This plays to their advantage when it comes to relationships with borrowers, Seminara said.
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Investors are becoming more critical of asset managers as a prolonged period of higher rates has created an ambiguous environment for credit funds, offering higher returns but greater risk of stress for the companies they lend to. As competition for capital intensifies, several mid-tier fund managers are struggling to raise money for new funds, people with knowledge of the matter said.
Market participants also expect the performance of different lenders to diverge as each manager’s portfolio is tested.
“As markets become increasingly difficult to navigate, investors are choosing to back direct credit funds with a strong track record and the scale and capacity to invest through credit cycles,” Mathieu Vigier, co-head of ICG’s direct lending franchise, told Bloomberg News in an interview.
Money raised by funds targeting institutional investors, including asset managers and pension funds, is expected to be about flat this year, according to data compiled by PitchBook. The data showed that about $91 billion was raised by 59 private credit funds in the first half of 2024. During the same period last year, 68 funds closed with $98.9 billion.
“Private credit asset managers are transforming the corporate debt landscape, taking market share from both commercial banks and the syndicated loan market, but also reaching new borrowers that these traditional intermediaries viewed as too risky,” wrote Jared Elias of Harvard Law School and Elisabeth de Fontenay of Duke University School of Law in a July research paper.
“As a result, there is a small elite club of perhaps a dozen asset managers that are playing an increasingly important role in corporate finance.”
Weekly overview
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Global bond yields fell to a two-year low this week on concerns about slowing growth in major economies and rising expectations of rate cuts.
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There continues to be a flood of issuance in the junk-rated debt market, with borrowers taking advantage of the lack of investors to make riskier deals such as dividends and leveraged buyouts.
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Banks are buying back their Additional Tier 1 bonds at levels never seen before, encouraged by regulatory clarity and a buyer base eager to absorb a record flood of new issuance. Meanwhile, Australia’s banking regulator has proposed allowing lenders to phase out AT1 bonds in capital requirements, potentially becoming the first jurisdiction to phase out the securities that were wiped out after Credit Suisse’s collapse last year.
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Some of China’s most closely watched property developers suffered their biggest losses in months after home sales data revealed a worsening property crisis.
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JPMorgan Chase & Co. is staging a historic retreat from preferred shares as Wall Street lenders retool their balance sheets in preparation for new rules that will be significantly weakened.
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Hewlett Packard Enterprise Co. tapped the U.S. investment-grade bond market to finance its pending acquisition of Juniper Networks Inc. Also in the high-grade market, a Blue Owl Capital Inc. fund sold $1 billion of debt, and Oneok Inc. sold bonds less than two weeks after it said it was buying a rival and a controlling stake in another company.
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In the U.S. leveraged loan market, chicken finger chain Raising Cane’s Restaurants LLC sold a $500 million deal after its debt price tightened. Additionally, Goldman Sachs Group Inc. is holding meetings with leveraged finance investors to gauge interest in Wayfair’s debt, and Formula 1 has priced a $2.55 billion package to finance the takeover of the MotoGP World Championship by owner Liberty Media Corp.
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Goldman Sachs Group Inc. is selling a significant risk transfer tied to a portfolio of about $3 billion in leveraged loans.
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In the $1.3 trillion world of secured loans, hedge fund Chatham Asset Management is launching a platform that will manage and invest in the securities, while Palmer Square Capital Management is launching two exchange-traded funds that will buy CLOs and other assets.
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TC Energy Corp. will pay compensation to buyers of a C$1 billion ($735 million) bond deal from Aspen Investments that failed to close.
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Discount chain Big Lots Inc. has filed for bankruptcy protection and plans to sell the company’s assets and ongoing operations through a court-supervised proceeding.
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Retailer J. Crew is looking to attract investors with a hefty yield of more than 11%, along with significant investor protections via a $450 million term loan, as the company seeks to refinance debt.
En route
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Bank of America Corp. named Rashaan Reid head of Americas fixed-income, currencies and commodities sales trading. Reid joined the bank in 2001 and has spent much of her career in mortgage and securitized sales.
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Adam Piekarski, co-head of real estate lending at BDT & MSD Partners, is leaving the firm to start his own investment firm focused on commercial real estate debt.
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Om Pandya has joined Clifford Chance as a partner in the capital markets practice in Houston.
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Long Corridor Asset Management Ltd. has hired Kenny Wu, former head of China credit research at another hedge fund, BFAM Partners (Hong Kong) Ltd.
–With assistance from Kat Hidalgo and Francesca Veronesi.
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