Higher interest rates presented a challenging environment for dealmakers and the debt markets in 2023. But what does 2024 have in store? In this edition of Credit Conditions, we look back at last year’s key market trends and explore their potential impact on debt markets in the coming year.
IN DEPTH
Key Debt Market Trends
Interest Rates
Private Equity and M&A
Private Credit vs. BSL
- The private credit industry continued to dominate market share for leveraged buyout (LBO) and M&A financing over the broadly syndicated loan (BSL) market in 2023. Last year, BSL LBO financings were at their lowest level since 2017, but 2023 also saw some of the largest private credit deals to date. The private credit industry also appears to be maturing, as private credit funds are beginning to move away from a generalist approach toward specializing in specific industries in an effort to differentiate themselves from the competition, including with private credit entering the asset-backed loan market.
- As interest rates decline and spreads tighten in the BSL market, it’s likely that the cyclical trend toward private credit will begin to reverse somewhat and the BSL market will see increased deal flow. Throughout 2023 and thus far in 2024, we have seen some borrowers refinance private credit loans in the BSL market, though much of the recent BSL volume has been driven by amend and extend transactions, repricings (which were more muted in February following the January Federal Reserve meeting) and refinancings rather than M&A. The BSL market has also begun to see a resurgence in dividend recapitalizations, in part because of the lack of M&A activity in 2023 as sponsors seek to return capital to their investors.
- The line between banks, the BSL market and private credit is also beginning to blur, as several banks have begun partnering with private credit or setting up their own private credit investment funds. However, some investors and regulators have raised concerns about systemic risks created by the private credit industry because of linkages with the insurance and banking The jury is still out on the accuracy of these concerns and regulatory changes are unclear, so the impact on the private credit markets remains to be seen.
Junior Capital
Distress and the Maturity Wall
Key Debt Market Data on CreditSights
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