One example of private credit financing large buyouts that would typically be covered by a BSL was the $10.4 billion buyout of Anaplan, Inc. For BSL deals that did transact, larger private credit funds stepped up to finance transactions, or round out syndicates, that would normally be absorbed by the syndicated loan market. The general flight to quality of the “haves” has resulted in the “have nots” losing ~1.0x leverage and ~150 bps of spread, while the strongest credits in reliable industries have only given up ~25 – 50 bps in pricing.ĭuring the second quarter, private credit investors benefited from an increased opportunity to deploy capital as broadly syndicated loan arrangements paused. Not only have the effects of this shift been felt on typical consumer discretionary items (travel, luxury, leisure, etc.) but also in areas like food and restaurants, where consumers are cutting down on or cutting out spending entirely. Inflation, rising rates, and supply chain issues all contributed to volatility experienced throughout the quarter and a more conservative stance towards assets that may perform poorly in an economic contraction. Lenders have sought to limit exposure to cyclical businesses as well as those with outsized exposure to consumer spending (the “have nots”). The credit markets have bifurcated between the “haves” and “have nots”. A welcome sign for credit funds and sponsors alike seeking to deploy the significant amount of capital raised in recent years. Forward indicators, such as Quality of Earning providers’ backlog, suggest a ramp in activity post-Labor Day. Additionally, acquisition timelines are stretching as earnings erode (leading to re-trades) and sell-side bankers no longer maintaining ultimate leverage over buyers. Lenders are more commonly pushing back on terms in documentation, seeking increased protection heading into what many believe is a recessionary environment.ĭespite these aforementioned challenges, M&A volume remains active, but qualitative feedback suggests that assets in market are much weaker than prior quarters. Sponsors accustomed to record low pricing have seen spreads widen as lenders began to price in recent macroeconomic risk factors as well as feeling the impact of federal reserve rate hikes. The private credit markets remained open for borrowers, albeit at less favorable terms than years past. Global economic concerns such as inflation, the Russian invasion of Ukraine, and oil prices continued (or escalated) through June, suppressing larger syndicated transactions compared to 2021. Second quarter market conditions maintained the trend of choppiness in the broader markets that began during 1Q22.

Arrow loan arrangers