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Investment Banks Seek to Win Back Private Credit Loans

Citi

Investment banks are reportedly trying to win back leveraged finance deals from the private credit space.

Banks such as Goldman SachsCiti and Barclays are among the banks in talks with buyout firms about loans issued during more volatile periods, Bloomberg News reported Monday (Jan 22), citing sources with knowledge of the matter.

Now that loan markets are calmer and interest rates are due to drop, these banks hope to reclaim some of that business. Sources said banks are vying to refinance the $924 million loan that backed KKR’s buyout of French insurance broker April Group, along with the $544 million that backed EQT AB’s purchase of calibration services firm Trescal Ltd. 

The report noted that investment banks have an opportunity now, as private credit unitranche loans typically let companies refinance around 12-18 months after a deal is first priced without incurring major charges. And a drop in borrowing costs in the leveraged finance market could let banks offer cheaper deals and fewer covenants than direct lenders. 

Once the syndicated market normalizes, some larger private credit deals from years ago “are likely to be refinanced with cheaper syndicated debt,” Osvaldo Pereira, head of direct lending at Park Square Capital, told Bloomberg. 

Still, it’s “too simplistic” to think that borrowers will opt for syndicated loans simply because they are once again available, he added, noting that there “are sponsors and borrowers who will continue to prefer a private credit solution.”

The news follows reports from last month that Goldman Sachs was looking to double its private credit operation.

As PYMNTS wrote last week, private credit, or private debt, has emerged as a way for businesses, especially smaller Main Street businesses, to attain the capital they need, while offering lenders an opportunity to tap into a market worth trillions of dollars.  

“As has been noted through the past year, and as has been a trend, traditional lending channels — read: banks — have become more stringent in their underwriting and lending activities,” the report said. 

“The Federal Reserve estimated last month that small business lending waned in the third quarter (the latest period for which stats are available) as ‘new lending’ slipped 18.1% from the same period in 2022 and 16.4% from the previous quarter,” PYMNTS added.