Our late January call for a lot of forthcoming press about broadly syndicated TLB markets fighting back/retaking share from private credit was very much on target in the large cap space. Private credit spreads have come in to try to close the gap to BSL. Lots of ‘what me worry?’ kind of commentary about this dynamic from leaders of largest PC firms given pressure to deploy.
In the middle market / lower middle market, Fountain Gate Advisors reports the following:
High levels of private credit competition (on rate and speed dimensions) for strong credit quality opportunities
Asset managers seem willing to come in meaningfully on spreads and try to move unnaturally quickly through diligence for deals that look like strong credits through an 80%/20% type level of detail on the credit work
Competing on ‘speed’ within an asset class that markets ‘speed’ as one of their differentiators vs. other debt markets will eventually result in credit investors missing things in diligence, but for now it is a win strategy that is required in many processes.
Have heard examples of cov-lite private credit bids sub $50MM EBITDA on strong credits. Doesn’t exactly track to PC LP marketing docs touting stronger structural protections than BSL, but is showing up amidst pressure to deploy capital
Discerning behavior still being observed on more neutral/tougher credit profiles
Feels like private credit originators are concluding they wouldn’t lose their jobs as a result of bidding lower spread on good credit, but they might if they advocate making a credit investment that could look bad on a simplistic lookback basis
Pro rata
Overall tone is much more open for businesses than it was in 2023.
The banks where credit risk management or ROE hurdles are operating more strictly feel a little behind the news cycle in the current market — they risk being ‘right’ conceptually while losing market share to peers that are going more risk on.
Treasury management and deposits remain a powerful motivator to the banks to consider extending credit
Fountain Gate Advisors is excited to report we crossed the one year anniversary mark on 3/1/24 with strong momentum in our boutique middle market debt advisory practice.
We are adding capability via experienced professionals with complementary skills (including the recent creation of a Treasury & Payments advisory practice), and building a great set of references across multiple types of debt advisory assignments.
We welcome intros and referrals, and appreciate your continued support.
