By Nupur Anand and Saeed Azhar
NEW YORK (Reuters) -Tariff uncertainty and market volatility have sent some companies looking for a flexible, more certain route to funding from private credit firms, resulting in the spurning of traditional lenders in some cases.
A number of companies have selected loans from private credit providers over traditional forms of credit since the beginning of April when back-and-forth policy over tariffs created market choppiness. Analysts and bankers forecast that private credit, a $2 trillion industry that has grown from $500 million a decade ago, benefited from the volatility.
“When you have volatility, it becomes relatively harder for the banks to place new deals into the syndicated loan market,” said Mike Koester, a former Goldman Sachs executive who co-founded 5C Investment Partners, a private credit investing firm.
“And that is when private credit takes more share because it already has the capital and it can lend directly where it is required.”
Recent examples have been Lakeview Farms, which sought to fund its $200 million buyout of yogurt-maker Noosa in April. Lakeview chose to obtain a loan from private credit firm Silver Point Capital because it offered more flexible financing than traditional lenders like banks via the syndicated loan process, two sources told Reuters. Citigroup was initially leading the loan talks, one of the sources said.
Citi declined to comment. Lakeview did not respond to a Reuters query for comment.
In another transaction, Blackstone and Apollo Global Management jointly led the private credit financing of about $4 billion for Thoma Bravo’s acquisition of Boeing’s Jeppesen navigation unit alongside other investors, two sources said.
“At the moment, private credit is very competitive,” said Ted Swimmer, head of capital markets and advisory at Citizens Financial, which sometimes competes with private credit companies. It also lends to them and works with them on deals. “We were structuring a couple of syndicated loans but we could not price those loans competitively given the market volatility and lost the deals to private credit bids.”
The total number of syndicated loans in the U.S. declined by 15% between January and May 21 versus the same period last year, according to Dealogic, as bankers said volatility in markets slowed public markets.
Direct lending transactions – which directly compete with the syndicated loan market and usually involve a handful of private credit funds – have fallen at a slower pace of 10% in the first quarter from the same period a year earlier, PitchBook’s Leveraged Commentary & Data shows.
There has been an increase in direct lending credit deals in April and May, two sources at private credit firms and a banker said.
Private credit may be more expensive than traditional lending, but it offers more flexible terms for structuring a transaction, industry players say.
This can include flexible loan terms, repayment schedules, covenants, and collateral requirements, unlike more standardized underwriting models for banks.
The Lakeview deal, announced on April 8, came at a time when credit spreads for borrowers had widened sharply as financial markets tumbled in the wake of President Donald Trump’s sweeping tariff announcements.
“Volatility is often not the friend of the public financing markets,” Brad Marshall, global head of private credit strategies at Blackstone Credit & Insurance, told Reuters.
“In many cases, it is very much a friend of the private markets because it is more reliable as you’re taking a longer-term view.”
INDUSTRY GROWTH
The growth in private credit came after stricter regulations put in place after the 2007-09 financial crisis made it more expensive for banks to finance risky loans to debt-ridden companies.
Direct lenders, often nonbank entities like private equity firms and asset managers such as Apollo, Ares Management and KKR, are sometimes seen as a more viable financing option than traditional banks due to their ability to offer more flexible terms and leverage.
More borrowers are turning to private credit, which can provide greater certainty relative to the broadly syndicated markets, said Kort Schnabel, partner and co-head of U.S. Direct Lending at Ares.
“During volatile markets, the value of certainty increases,” he said. Another key lender, Apollo, did not respond to a request for comment.
Large Wall Street lenders including JPMorgan Chase, Morgan Stanley and Goldman Sachs have also set aside billions of dollars for direct lending and have been participating in some of these deals, sources said.
Goldman Sachs, JPMorgan and Morgan Stanley declined to comment.
“We believe that private credit will accumulate greater market share amidst the volatility,” said Marc Pinto, Moody’s Ratings global head of private credit. “They’re a bit more agile.”
(Reporting by Nupur Anand and Saeed Azhar in New York, Additional reporting by Tatiana Bautzer in New York, Editing by Lananh Nguyen, Megan Davies and Matthew Lewis)
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