UK Trends and Developments Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
declined and the majority of transactions were consummated using private capital. As syndi - cated markets reopened, a number of private credit deals were refinanced with cheaper debt, leading to increased competition between banks and credit funds to provide financing solutions to businesses and retain market share. This trend is likely to continue into 2025 as call protection in private credit deals signed up during 2022 and 2023 begin to taper off. However, a number of private credit funds are pre-empting this poten - tial shift by offering price cuts and greater cov - enant flexibility in order to maintain their hold on market share. As the M&A pipeline throughout the later part of 2024 and into 2025 has started to build, both broadly syndicated financing and private capi - tal financing will remain highly relevant in the leveraged finance landscape. Some situations will inevitably favour one form of lending over another, whether due to sectoral, geographic or currency constraints. However, many situations (indeed those involving businesses with more complex capital needs) will require both forms of financing simultaneously, for example by way of multi-tranche senior secured debt, senior bank debt plus private junior debt and/or equity capi - tal or hybrid-style financings. Diversified sources of private capital While private credit yields remain attractive relative to other asset classes, increased com - petition from the syndicated bank market, in particular, downward pressure on pricing, has encouraged diversification of financing sources by private credit funds whose underlying inves - tors traditionally expect a higher rate of return than bank shareholders. Several larger asset managers have deployed insurance-based acquisition strategies to boost capital available for deployment at a lower cost than traditional
sources of funding. In addition, a number of asset managers have expanded their fundraising efforts by opening fund investment opportunities to high net worth individuals and family offices. This has permitted certain private credit funds to offer businesses a lower cost of capital, increas - ing the fund’s AUM and maximising deployment opportunity. Bifurcation of private credit market In the last five years the ever-growing private credit market has clearly bifurcated into an elite camp of super-private credit providers and a more crowded group of competitor funds lend - ing smaller amounts. Several big-ticket asset managers have effectively used scale and size to become super-private credit providers, allow - ing large-cap businesses to use private credit as a one-stop shop for senior and junior financings, with credit funds underwriting ever-larger capital needs and allocating that capital to multiple dif - ferent accounts under a single asset manager. Several ground-breaking private credit financ - ings have taken place in recent years with pri - vate credit lenders providing multibillion-dollar loans to businesses in transactions which more typically would have been financed using the broadly syndicated markets. Identifiable clear water has developed between a smaller number of mega-funds and a larger number of credit funds which operate in a more crowded and competitive landscape, typically lending smaller amounts to a greater number of businesses. Numerous private credit funds continue to operate multi-strategy approaches. However, many funds invest across the whole credit spectrum, from performing loans to spe - cial situations and distressed lending.
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