Private Credit Uplift Matched by Heightened Rates Protection
(9 July 2024 - Global) Lenders to companies with lower credit ratings and higher debt loads are increasingly mandating protection from contractual loopholes used to subvert creditors if and when loans default.
In recent major debt capital market (DCM) deals money managers have successfully closed stipulations borrowers may have attempted to exploit if higher-for-longer interest rates negatively impacted their ability to service the loan.
The explosion of private credit into a US$1.7 trillion market force has underpinned fierce competition among lenders and prompted concerns about loan terms. While the burgeoning market has hung its hat on avoiding lax terms that have crept into Wall Street’s lending books, heightened competition between traditional bank lenders and new private credit heavy weights have deteriorated the security and reliability of borrowing contracts.
“Because the market is so hot, investors are willing to consider lending to challenged companies, but in order to get those deals across the finish line, they want incremental protections,” stated AllianceBernstein Portfolio Manager, Robert Schwartz.
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