This story was originally published on PitchBook.Market participants say the outlook for transaction activity in private credit for 2025 has brightened. But the ability to source assets is top of mind for next year, in what’s become a crowded playing field within the asset class, marked by a growing number of major partnerships.PitchBook LCD’s inaugural quarterly Global Private Credit Survey, published last month, found “sourcing assets” and “geopolitical uncertainties” were leading concerns for private credit players next year. Respondents included credit providers, banks, private equity shops, and advisory firms from the United States and Europe. Driving this trend is the demand from private equity investors to return capital, which is expected to boost M&A and LBO activity in 2025. “The backlog for the first quarter, as we sit here in early December, is as high as we’ve seen in a while coming into a new year. More evidence that unrealized exits are starting to come to market,” said Randy Schwimmer, vice chairman of Churchill Asset Management. “These new deals are planes on the runway waiting to take off. And there are planes looking to land that have been circling the airport for a while.”Deal VolumeLast year, the private credit market captured deal flow handily from the broadly syndicated loan market. The seemingly endless one-directional move that dominated in 2023, with deals migrating from the BSL market into private credit, stopped in the first quarter of 2024, when the BSL market reopened for lower-rated credits. The lower spreads proved difficult to ignore.But private credit lenders are not giving up the fight. They are looking for opportunities with near-term maturities in the BSL market. Interest rate cuts have been another hallmark of 2024. Debt issuers in both markets have locked in lower borrowing costs, alleviating the strain on levered companies. These lower borrowing costs are expected to spur deal activity, brightening prospects for transaction volumes in 2025.“We’ve seen a leveling off of inflation. We’ve seen interest rates actually be a nice tailwind. I think the environment is going to be more supportive than I’ve seen it in the last few years,” said Spyro Alexopoulos, co-head of direct lending at Golub Capital.Many market participants have expressed optimism that a second Trump term will further “grease the skids” for M&A through policies promoting less regulation, tax cuts, and relaxed antitrust oversight. Removing “election uncertainty” was cited as a win for improved deal activity.“We certainly think the first half of next year is going to be busy. We view the second half as more of a question mark because of the potential for inflation to flare up again,” said Michael Ewald, global head of Bain Capital’s Private Credit Group. It makes sense then that if M&A activity picks up, dividend and repricing activity will likely decline. Repricing existing deals and payin
Dom. Dic 29th, 2024
