Private credit has grown from a relatively niche part of debt capital markets prior to the global financial crisis in 2007 into a $2trn worldwide asset class that now rivals the broadly syndicated levered loan and high-yield bond markets in size and scale. This segment of the credit markets encompasses non-bank direct loans typically to small and mid-sized companies that are negotiated on a bilateral basis.
Growth in private credit over the last 20 years was supercharged by a number of idiosyncratic factors, including:
- changes in bank regulations that curbed bank lending and reined in risk appetite,
- low interest worldwide rates driving insatiable demand from institutional investors for alternative assets in search of higher yields,
- demand from borrowers for speed, flexibility, confidentiality, and bespoke solutions not available in public markets, and
- significant growth in and alignment with private equity deal flows.
Private credit, however, remains untested by a significant and sustained downturn in credit markets and the broader economy. 9finundertakes a broad review of the private credit sector as part of a multipart series to analyze the current challenges and explore the likelihood of another systemic credit event arising from the private credit markets, analogous to the GFC downturn...
