Private Credit

Extracted Attributes

• Aliases

  Direct lending, Private lending

• Category

  Alternative credit

• Key Trend

  Rise of covenant-lite loans

• Definition

  Non-bank lending where the debt is not issued or traded on public markets

• Target Borrowers

  Middle market companies (US$25m to US$75m in EBITDA), sponsored or non-sponsored, often unrated

• Borrower Benefits

  Access to capital with customized financing, flexibility, speed of lending, better servicing, bullet payments

• Investor Benefits

  Portfolio diversification, attractive yields, illiquidity premium, historically lower loss rates

• Returns vs. S&P 500

  Exceeded S&P 500 index every year since 2000

• Global Market Size (IMF, April 2024)

  Over $2 trillion

• Global Market Size (JPMorgan, April 2024)

  $3.14 trillion

• US Bank Share of Middle Market Loans (1994)

  Over 70 percent

• US Bank Share of Middle Market Loans (2020)

  Around 10 percent

• Leveraged Buyout Debt Financing Share (2024)

  77 percent (highest since 2015)

• Average Returns (2018, across all strategies)

  8.1% IRR

• Investment in Emerging and Developing Markets (2022)

  US$10.8 billion (89% increase)

Timeline

• U.S. bank underwriting covered over 70 percent of middle market loans. (Source: Summary, Wikipedia)

  1994

• Returns of private credit began exceeding those of the S&P 500 index every year. (Source: Summary, Wikipedia)

  2000

• Global Financial Crisis occurred, leading to tightened SEC restrictions and capital requirements on public banks, which spurred the rapid expansion of the direct lending market. (Source: Summary, Wikipedia, Web search)

  2008

• Baseline year for comparing the share of leveraged buyout debt financing provided by private debt funds. (Source: Wikipedia)

  2015

• Private debt fundraising exceeded $100 billion. (Source: Wikipedia)

  2017

• Average returns across all private credit strategies were 8.1% IRR. (Source: Wikipedia)

  2018

• U.S. banks issued/held around 10 percent of middle market loans, a significant decline from 1994. (Source: Summary, Wikipedia)

  2020

• Private credit investment in emerging and developing markets rose by 89% to US$10.8 billion. (Source: Wikipedia)

  2022

• International Monetary Fund estimated the global private credit industry size at just over $2 trillion. (Source: Summary, Wikipedia)

  2024-04

• Private debt funds provided 77% of leveraged buyout debt financing globally, the highest share since 2015. (Source: Summary, Wikipedia)

  2024

• Private credit market is projected for significant growth. (Source: Web search)

  2025

Private credit

Private credit is an asset defined by non-bank lending where the debt is not issued or traded on the public markets. "Private credit" can also be referred to as "direct lending" or "private lending". It is a subset of "alternative credit". Estimations of the global private credit industry's size vary; as of April 2024, the International Monetary Fund claims it is just over $2 trillion, while JPMorgan claims it to be $3.14 trillion. The private credit market has shifted away from banks in recent decades. In 1994, U.S. bank underwriting covered over 70 percent of middle market loans. By 2020, U.S. banks issued/held around 10 percent of middle market loans. The direct lending market expanded rapidly after the 2008 financial crisis, when the SEC tightened restrictions and capital requirements on public banks. As banks decreased their lending activity, nonbank lenders took their place to address the continued demand for debt financing from corporate borrowers. Private credit has been one of the fastest-growing asset classes. By 2017, private debt fundraising exceeded $100B. In 2024, private debt funds provided 77% of leveraged buyout debt financing globally, representing the highest share since 2015. Banks provided the remaining 23%, notably representing the lowest share for banks over the same period. One factor for the rapid growth has been investor demand. As of 2018, returns were averaging 8.1% IRR across all private credit strategies with some strategies yielding as high as 14% IRR. Returns have exceeded those of the S&P 500 index every year since 2000. At the same time, supply increased as companies turned to non-bank lenders after the 2008 financial crisis due to stricter lending requirements. Private credit investment rose in emerging and developing markets by 89% to US$10.8 billion in 2022. One recent trend has been the rise of covenant-lite loans (which is also an issue for publicly traded investment grade and high yield debt). This has been driven by investor demand for the relatively high yield compared to alternatives and a willingness to accept less protections. This has resulted in fewer company restrictions and fewer investors' rights if the company struggles. That being said, for the investment firms, covenant-lite loans can also be helpful because of the negative optics if a portfolio company goes into default, and fewer restrictions means fewer ways a company can go into default.

Web Search Results

• What is private credit? And why investors are paying attention

  In short, private credit refers to the many types of privately negotiated loans between a borrower and a non-bank lender. Private credit enables borrowers to access capital with customized financing details, giving them more flexibility and speed of lending. [...] The ability of a new generation of investors to access private credit exposures through tradeable, transparent, and cost-efficient vehicles like ETFs likely to propel the growth of this $40T potential addressable market even further. What is private credit? Private credit refers to loans and debt financing provided by non-bank lenders to businesses, typically outside of public markets. [...] Private credit has emerged as a powerful way to access capital without tapping into public debt markets, attracting both borrowers and investors. Borrowers can get access to capital on more flexible and customizable terms, with potentially greater speed of execution. In turn, these private loans can potentially be attractive to investors because they can potentially offer more portfolio diversification and attractive yields relative to public debt markets. 1

• Understanding Private Credit's Rapid Growth - Morgan Stanley

  Private credit is a form of lending outside of the traditional banking system, in which lenders work directly with borrowers to negotiate and originate privately held loans that are not traded in public markets. Following the Global Financial Crisis (GFC) in 2008, and the associated capital rules for banks, private credit has filled a lending void. There are generally five common types of private credit2: [...] Illiquidity premium: Private credit may provide a yield spread above public corporate bonds to compensate for the “illiquid” or non-tradeable nature of the investments. Historically lower loss rates: Private credit has demonstrated lower loss rates relative to public credit over time. Diversification:Private credit has been less correlated with public markets than other asset classes, such as equities and bonds. This can help reduce portfolio volatility and improve risk-adjusted returns. [...] Within private markets, private credit has delivered strong risk-adjusted returns relative to private equity, venture capital, real estate and other real assets such as infrastructure.5

• Private credit – a rising asset class explained - flow – Deutsche Bank

  Private credit is non-bank lending typically to middle market companies which typically range in size from US$25m to US$75m in EBITDA. These companies can either be sponsored, or owned by a private equity firm, or non-sponsored. They are also often unrated companies, although a credit assessment, or point-in-time rating of the company will often be done in conjunction with financing. The term ‘direct lending’ is synonymously used with private credit, capturing the direct nature of the financing [...] It is often the most viable financing solution for many corporates. Borrowers appreciate the flexibility of private credit, which allows them to use it for expansion, refinancing, and improving working capital. Benefits include better servicing, and an increased number of providers, including one-stop shops such as private equity (PE) houses. Private credit typically also features more ‘bullet payments', allowing borrowers to invest in growth rather than meeting immediate repayment obligations. [...] Investor demand for the resulting debt asset is primarily institutional, but retail flows are increasing due to the greater use of the BDC (Business Development Company) structure. Private credit offers compelling performance metrics, such as senior lending returning almost 9% annually over the last decade, which is greater than that for global equities and double that for publicly traded loans. Private credit assets also offer investors:

• Private credit: Rewiring credit in capital markets - PwC

  Private credit is not a private version of what happens in public markets and bank syndicated lending. It’s different; a more streamlined routing of credit from pools of capital to borrowers — as we discuss below, it’s a step up in efficiently matching assets and liabilities. Private credit is producing systems of capital raising, investment tailoring, lending customization and origination that can better serve the needs of investors — who are realizing predictable, long-term returns on [...] Much of what you read or hear about private credit is only part of the story. Private credit is a growing investment asset class and, yes, more of the loans the industry are making often come at the expense of banks’ balance sheets. [...] With banks’ lending platforms being put in tightly controlled fields of play due to regulations, private credit is becoming the arena where tailored solutions are being built to help allocate debt capital. Those tailored solutions are not meant for special circumstances; private credit’s practitioners are aiming to become a normal part of everyday lending.

• Private credit market set for significant growth in 2025

  > Private credit has become a fast-growing asset class that’s taken a permanent share of the corporate lending market, with growth being driven by both secular shifts and repeat business from the expanding borrower base.” Bill EckmannHead of Principal Finance and Private Credit, AmericasMacquarie Capital