Bloomberg：私募信贷直接借贷Q3规模创三年多新低，大型放贷机构下沉小客户激烈压价

With direct lending deals chalking up their worst quarter in more than three years, some private credit firms are moving downmarket.

Business that might have once escaped the attention of large direct lenders — loans to companies with earnings less than $20 million — is suddenly becoming fiercely competitive. And borrowers are coming out on top.

Take EOS Corrugated, which makes tools and parts for corrugated cardboard manufacturers and is being sold by its private equity owner Sagard. Barings and CVC Credit Partners are among the lenders ready to finance its acquisition with a debt package amounting to 5.5 times a measure of its annual earnings of about €25 million ($28 million), according to people with knowledge of the matter.

The loan could be priced to yield as little as 475 basis points above benchmark rates, said the people, asking not to be identified as the details are private. The leverage levels and terms on offer are atypical for smaller companies with shorter track records and thinner cushions to absorb operational setbacks or economic downturns. For both asset managers, EOS is at the lower end of a typical borrower, based on earnings. A representative for Barings declined to comment, while CVC didn’t immediately respond to requests for comment.

Wells Fargo & Co. strategists liken the trend to playing “small ball” in baseball, with lenders sticking to the very bottom of their range and looking for incremental wins rather than home runs. Deals to lower- and core middle-market borrowers accounted for two-thirds of private credit in the third quarter, according to the bank’s survey of US direct lending this month.

That’s happening as overall deal flow slows sharply. At $38.9 billion, direct lending volumes in the third quarter dropped to their lowest quarterly amount since the second quarter of 2023, according to analysts from JPMorgan Chase & Co.September’s $10.4 billion of direct loans represented a decline of 66% from a year ago, and was far below the recent average monthly pace of about $23 billion, the analysts wrote in a note this week.

In a year marked by record redemptions from the $1.8 trillion private credit market, as well as questions about underwriting standards and exposure to software businesses threatened by AI disruption, a number of asset managers are tending to troubled funds and have less capital to deploy. That’s allowed Wall Street banks to wrest back some momentum in their long-running battle against direct lenders.

So far this year, $22.9 billion of loans have been refinanced from private credit into bank loans, compared with the $9.2 billion moving the other way, according to JPMorgan. That’s unusual because direct lenders have typically gained ground during periods of volatility, stepping in when banks retreat — as they did when interest rates surged in 2022.

Add to that environment the persistent absence of large-cap leveraged buyouts, and it’s not a surprise that private credit firms are hunting for deals wherever there’s an opportunity. “We’re definitely seeing larger managers looking at smaller deals to put more money to work,” said Greg Ciesielski, managing director at HarbourVest Partners, which manages more than $160 billion in private markets assets.

In Europe, there have been a few recent examples of larger managers lending to smaller businesses. In September, Ares Management Corp. backed the buyout of Swedish engineering company Metalock and Golub Capital provided a debt package for Atoz Services. BlackRock Inc. refinanced French healthcare company iLC in June.

To be sure, beyond direct lending, private credit firms such as Blackstone Inc. and Apollo Global Management are still arranging multi-billion dollar transactions for higher-grade borrowers financing their AI buildout.

But the intense competition for smaller-scale deals has put the businesses on equal footing with their larger counterparts when it comes to borrowing costs. Businesses with less than $20 million in earnings before interest, taxes, depreciation and amortization now pay roughly the same amount as those businesses that generate more than $100 million, according to data from KBRA DLD.

“With interest rates higher, increasing the cost of capital, exits are slow and overall deal flow is generally down,” said Randy Schwimmer, vice chairman at Churchill Asset Management, an affiliate of Nuveen, the asset manager of TIAA. “I’ve been calling it the period of zero gravity.”

MidCap Financial provided an $80 million senior credit facility to Bridgepoint-owned RoC Skincare in September MidCap Financial provided a $60 million senior credit facility to medical technology company Ceribell in August Fortress Investment Group inked a $265 million private credit financing deal for SourceCode, an IT provider Partners Group supported the acquisition of a majority stake in German manufacturer MDT Technologies by BU Bregal via a €300 million ($336 million) debt facility Oakley Capital secured €450 million ($504 million) in financing to acquire debt administrator Global Loan Agency Services

Deals

Blackstone Inc. and Albacore Capital have lent £140 million to infrastructure services provider Network Plus Group Prospect Capital Corp. has told bond investors it will redeem $263 million of notes due next month, as the private credit fund continues to shop around a refinancing deal Pivot Energy closed a bilateral $500 million corporate credit facility with Nuveen Energy Infrastructure Capital Sound Inpatient Physicians Inc. is close to clinching a $1 billion refinancing with existing lenders, including Monarch Alternative Capital and PGIM

Fundraising

Mexican lender SilverBlue plans to raise 4 billion pesos for its second private credit fund by the end of 2027 as it looks to capitalize on a dearth of financing options for mid-sized companies in the country Tikehau Capital SCA is looking for a new strategic investor to help fuel its next phase of growth

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Bloomberg News is tracking corporate loans originated by private credit firms around the globe in the Private Credit Loan Monitor.Subscribeto the Private Credit Weeklyfor more news and analysis on the $1.8 trillion market.