USA Law and Practice Contributed by: Stelios G Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins LLP
Even with the resurgence of public debt markets, private debt has continued to thrive in the acquisi - tion financing space given the strong adaptability and evolving capabilities of the largest funds. 1.4 Challenges The main challenge for the expansion of private credit has been the re-emergence of the broadly syndicat - ed market against the backdrop of tightening credit spreads, which in turn heightened competitive pres - sure from investment banks in the syndicated space. Private credit lenders have also become more cau - tious and conservative following the erosion of deal protections stemming from the fast growth of the private credit market. Particularly following the Plu - ralsight drop-down of assets, private credit lenders have sharpened their focus on liability management issues to ensure that such erosion of terms does not become commonplace in the market. 1.5 Sponsored/Non-Sponsored Debt Private credit providers are focused primarily on pri - vate equity sponsors and their portfolio companies. At the same time, private credit solutions also support emerging growth companies and non-investment- grade corporate borrowers (including public bor - rowers). By contrast, private credit providers are not particularly active in the investment-grade space. As such, yields are often insufficient to satisfy a private credit provider’s investment strategy. 1.6 Recurring Revenue Deals and Late-Stage Lending “Recurring revenue” deals are still a relatively new innovation allowing lenders to finance growth-stage companies that have low or negative EBITDA. Amid the increasing interest rate environment in the back half of 2022 and throughout 2023, the number of recurring revenue deals coming to market had slowed dramatically. This past year saw the re-emergence of these transactions in the context of new take-private acquisitions (including Vista’s closing in Q1 of Engag - eSmart) as well as in the private M&A markets. 1.7 Deal Sizes, Fund Sizes and Fundraising Overall transaction sizing has continued to further converge between private credit transactions and
syndicated matters. Private credit continues to see a greater number of “jumbo” deals at market. The private credit asset class continues to attract investor interest. In the last 12 months, traditional banks have pushed further into the private credit space via partnerships and also an internal focus on private credit solutions. Additionally, the continued enthusiasm for private credit has spurred a wave of consolidation (including BlackRock’s acquisition of HPS Investment Partners). 1.8 Impending Regulation and Reform On 5 December 2025, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a joint interagency statement rescinding the March 2013 Interagency Guidance on Leveraged Lending as well as the accompanying FAQs for implementing such Guidance. Instead, the agencies expect institutions to manage leveraged lending exposures consistent with general principles for safe and sound lending. This has the potential to allow lenders to make their own determinations of risk appetite, which will give private credit lenders greater flexibility to underwrite a broader range of loans and to each develop an institution-specific definition of what is a “leveraged loan”. In turn, this may let some pri - vate credit with more competitive mandates be better able to compete at deeper leverage levels that would have been restricted under the prior supervisory con - straints. 2. Regulatory Environment 2.1 Licensing and Regulatory Approval While no US federal regulatory framework applies to non-bank lenders that are engaged in commer - cial lending in the United States, a few US states require non-bank lenders to obtain a licence before engaging in commercial lending activities (ie, lending activities between corporate lenders and corporate or institutional borrowers for business or commercial purposes) under certain circumstances. The commer - cial lending licensing requirements of some of these states are generally triggered only when a commercial loan is secured by real property located in the state. In our experience, California is the state most often
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