UK Trends and Developments Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
Increasing Prominence of Private Credit Private credit has become an increasingly promi - nent form of non-bank lending since the global financial crisis, representing a critical component of the financing sources which drive the global leveraged finance market. Pressures of inflation, increasing interest rates, geopolitical unrest and other macroeconomic factors served to push the private credit market to exceed approximately USD1.5 trillion in assets under management (AUM) at the end of 2024, with current growth projections implying a continuing upwards curve. Once labelled as “alternative lending”, private credit providers now compete on a level play - ing field with more traditional bank lenders or bank arranged lending, both in the context of providing financing to private equity-backed or “sponsored” businesses, as well as non-spon - sored businesses. This type of lending plays an important role in leveraged buyouts (LBOs), refinancings, dividend recapitalisations and other forms of financing arrangements, and has become a crucial alternative to the bank-driven lending market. As regulatory changes and financial market shifts have led to a reduction in traditional bank lend - ing, particularly to middle market and higher-risk borrowers, private credit has stepped in to fill this void, offering both flexibility and custom - ised solutions for businesses in need of capi - tal. This chapter explores the trends that have already shaped private credit in the UK, as well as emerging trends that are set to redefine its role in leveraged finance. Growth in market size Private credit has grown significantly in recent years, especially in the wake of post-2008 reg - ulatory changes that increased the difficulties higher-risk borrowers faced in accessing loans
from traditional banks. As of 2024, the global private credit market is estimated to exceed USD1.5 trillion in AUM, with projections sug - gesting this figure could continue to grow by between 10% and 15% annually over the next few years. This rapid expansion can largely be attributed to the rise of institutional investors, including pen - sion funds, insurance companies and sovereign wealth funds, seeking higher yields than those offered by traditional fixed-income instruments. Increased competition between private credit and syndicated bank markets The key benefits of private credit as a source of capital have traditionally been: • the increased speed of execution that smaller, more nimble private credit teams can provide with quicker response and decision-making times; • increased flexibility regarding the types of capital solutions private credit can offer, including an ability to provide debt, equity and hybrid capital solutions. This flexibility has made private credit financing particularly attractive; and • additionally, if a business is acquisitive or has plans for future expansion through acquisi - tions, private capital lenders’ ability to provide capex acquisition lines from day one and additional incremental capital for businesses’ future growth is highly attractive to sponsors and management teams. Despite the attractiveness of private credit as a capital source, the broadly syndicated loan markets remain active and highly competitive in terms of loan pricing. For a period of time fol - lowing the beginning of the Ukraine war, syndi - cated bank lending volume in Europe severely
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