UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
Latham & Watkins 99 Bishopsgate London, EC2M 3XF UK Tel: +44 207 710 1000
Email: pr@lw.com Web: www.lw.com
1. Private Credit Overview 1.1 Private Credit Market Continued Growth
Private Credit CLOs In November 2024, Barings launched the first European middle-market private credit CLO, valued at EUR380.6 million, highlighting private credit’s growing importance and potential for further growth. Path Ahead Looking ahead, market participants are expect - ed to innovate in capital structure management and risk strategies. Basel 3.1 reforms may lead banks to be more selective in lending, offer - ing private credit lenders more opportunities. Despite strong 2024 deal flow, private equity sponsors have withheld top assets due to high interest rates and inflation. A surge in M&A activ - ity is expected in 2025 as these assets become available. 1.2 Interaction With Public Markets In 2024, private credit lenders maintained their competitive edge in the upper middle market by reducing margins and accommodating higher leverage levels, retaining roles in many promi - nent deals. This adaptability is further evidenced by their ability to offer financing solutions across the capital structure, including junior and hybrid capital instruments, effectively addressing bor - rowers’ needs in the face of rising capital costs and liquidity demands.
In 2024, private credit’s growth, especially in sponsor-backed leveraged finance, highlighted its expanding role in the financial markets. Tra - ditionally more a mid-market product, private credit funds are now entering the large-cap space due to rising demand for flexible financ - ing and sponsors’ need for alternative capital sources with the tightening of the syndicated market. Dual-Track Dual-track processes, which explore both syndi - cated and direct lending, are increasingly com - mon in the large-cap space and, increasingly, the mid-market. This strategy creates competi - tive tension between banks and private credit funds, with sponsors benefiting from greater flexibility and better pricing. Sector Focus Private credit is active across various sectors, particularly in technology, industrials, consumer goods and financial services.
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