Private credit ventures deeper into risks Wall Street won’t take
The $1.7 trillion private credit industry is set on transforming itself into the world’s new banks, and it’s putting on display an ever greater tolerance for the risks of lending to indebted companies.
Lately, that’s meant coming up with ways to stabilize companies wobbling under a third year of elevated interest rates. For some borrowers, the beginning of lower Federal Reserve interest rates, widely expected to start in September, may not come soon enough. Squeezed borrowers are finding it harder to engage with public markets, and that’s left them looking for stop-gap measures from private lenders.
“An absence of rate cuts from the Fed is starting to impact businesses who knew they would have to refinance and were hoping rate cuts would be a tail wind at this point,” said Tim Donahue, global head of capital solutions at Lazard. “Public credit investors are generally hanging back when it comes to more storied credits.”
Private credit funds are reaching further for deals as the leveraged buyouts that are their bread and butter stay scarce and the interest margins they can expect to collect on the biggest deals breach lows. Providing stop-gap funding is one way private lenders can keep up the stellar returns they’ve grown accustomed to.
Take Health Catalyst, a data and analytics provider to the healthcare industry. It received a $225 million credit facility from Silver Point Finance, which included a $100 million delayed draw term loan.
Carestream Dental Inc. recently approached private lenders to try to raise new debt as part of an out-of-court restructuring proposal, Bloomberg reported. Gopher Resource, which has been mired in litigation liabilities and other problems, also reached out to direct lenders. Officials at
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