UK Trends and Developments Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
Convergence of lending activity This rise of the mega-funds has created an interesting development over the last three to five years. The larger funds’ ability to compete with traditional bank markets has given rise to an increased level of interest in private credit within banks, which has spurred several banks to establish their own private credit platforms. Conversely, the increased frequency and attrac - tiveness to businesses of the jumbo-private credit transaction has encouraged private credit lenders to underwrite entire capital structures, then syndicate that risk to incoming lenders, lim - ited partners and other investors, in some ways mirroring the traditional activities of syndicated lending arrangers. In addition, we have recently seen a noticeable increase in partnerships between traditional bank lenders and private credit funds. This is not a new phenomenon (such joint ventures were explored in the years immediately follow - ing the 2008 global financial crisis), but in 2024 the number of new co-lending platforms being created between banks and funds increased in both the US and Europe. These joint ventures are mutually beneficial for all stakeholders and allow credit funds access to a wide network of corporate borrowers through the banks’ relation - ships, while allowing banks to deploy capital to private credit borrowers while maintaining suf - ficient regulatory capital reserves. Borrowers also benefit from a “one-stop” relationship and are able to efficiently access products such as revolving credit and guarantee lines, which pri - vate credit funds have not traditionally offered. Convergence of documentary terms In addition to this reallocation of traditional roles in the leveraged finance market, legal documen -
tary terms between broadly syndicated deals and private credit deals have converged. In recent years, in the large-cap financing mar - kets, the gap between documentary terms of loans provided by private credit funds and those financed by the broadly syndicated loan market has narrowed considerably. Increasing pressure to deploy capital coupled with private credit funds developing stronger relationships with private equity sponsors, particularly in Europe, has led to a commoditisation of senior secured lending terms, whereas historically, private credit and bank markets catered to different borrower needs. The trend towards documentary term convergence is also becoming more evident in the mid-market space where private equity sponsors are increasingly likely to run dual track processes for smaller deals, creating increased competition in a space that has historically been serviced by private credit funds and smaller bank clubs. In the leveraged finance market, private credit has increasingly accepted covenant-lite financ - ings with no financial maintenance covenants and high-yield style covenant packages, albeit with tighter controls around debt incurrence and value leakage. Private credit funds’ acceptance of these features is now commonplace, in par - ticular for strong borrowers in robust defensive sectors. There is now tighter alignment between syndicated pricing and private credit pricing, including as to arrangement fees. Private credit interest rate spreads, while still higher, no longer reflect the more substantial premia seen in past years. That said, as private credit funds hold risk to maturity and typically do not operate an origi - nate-to-distribute model like traditional arranger banks, documentation remains more lender-
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