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22 Sep - Technical - Private Credit

Topic: Revival of private

https://www.cioninvestments.com/wp-content/uploads/What-is-Private-Credit-1.pdf

https://www.ft.com/content/e3e7596c-075b-4a19-9e4f-e9752da54e42

Hayfin raised EUR6 billion for direct lending to EU companies, which was 6x more than the last quarter. Hayfin was founded in 2009 after GFC. It manages EUR30 bn. Recent deals are the financing of the Hyve Group by Providence.

PE firms have $3.7 trillion of dry powder (funds that have not been utilised, e.g invested into a company or buy-out).

PE firms that have a private credit arm: KKR, Apollo, Carlyle, Blackstone 

Rising interest rates and greater economic uncertainty cause the boom in private credit funds but it causes great pressure to PE-backed businesses.

Basics of private credit

• Similar to how a bank gives a loan to businesses, a lender lend money to a borrower, usually SMEs, but the debt is not traded on public market like how public companies can securitise their debts into bonds and trade it. Since the loan from a private lender can be easily accessibly, that means the interest rate is also higher to offset the risks
• Private credit rose to prominence after the 2008 GFC when banks are deterred to lend to SME.
• Middle markets were active seeking non-bank funding post-GFC and they were willing to pay the higher interest rate
• They comprised of c.200k businesses and represented ⅓ of the private sector GDP, generating c. $1bn annual revenue
• They are diverse in geographies and sectors