USA Law and Practice Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
1. Private Credit Overview 1.1 Private Credit Market
ment banks had ceded to private credit lend - ers, in particular through refinancings, which, according to LCD data, accounted for 20% of financing transactions by deal count in 2024. Despite this competitive landscape, banks have been increasingly involved in a number of key partnerships with private credit players, show - casing the undeniable strength of the private credit market and signalling the evolving rela - tionship between the public and private debt markets. For example, Citigroup Inc entered into a USD25 billion partnership with Apollo Global Management in 2024 and Wells Fargo teamed up with Centerbridge Partners in a USD5 bil - lion partnership. We expect more partnership announcements of this kind in 2025 as market participants look to consolidate and strengthen their positions as the outlook brightens with increased M&A and IPO activity. 1.3 Acquisition Finance Private debt continued to play a major role in acquisition financings over the last 12 months as private credit lenders stepped up with com - mitted financings in the form of jumbo unitrache debt facilities to support some of the largest acquisition financings on tight timelines. To meet the demand of rising deal sizes, private equity sponsors have increasingly been building larger clubs of private debt lenders rather than relying on a single or small number of underwriters. 1.4 Challenges The main challenge for the expansion of private credit has been the re-emergence of the broadly syndicated market against the backdrop of tight - ening credit spreads, which in turn increased competitive pressure from investment banks in the syndicated space. Private credit lenders have also become more cautious and conservative following the erosion of deal protections stem -
The private credit market had previously flour - ished at the same time as the broadly syndicated market experienced a dislocation. However, over the last 12 months, banks have been returning to the syndicated market strongly, resulting in tougher competition for private credit lenders. At the same time, a wave of repricings reduced the higher spreads that had traditionally been a feature of the private credit market and created downward pressure on the size of loan com - mitments provided by direct lenders. Moreover, M&A and IPO activity was muted as many pro - spective deal makers sat on the sidelines waiting out the results of the US Presidential election. As a result of these increased challenges in the pri - vate credit market, lenders focused more on new asset classes and industries such as infrastruc - ture, consumer lending and real estate to carve- out gains in a tepid landscape for deal activity. That said, with the 2024 Presidential election behind us, the 2025 outlook points towards gaining momentum for M&A and IPO activity. Given the repeated success of the private credit market in providing private equity sponsors with speed, innovative financing solutions and execution certainty, the private credit market will be poised to capitalise on this increased activity over the next 12 months. 1.2 Interaction With Public Markets Public debt markets have become increasingly competitive with the private credit market over the course of 2024, marking a shift from 2023 when the vast majority of acquisition financings were provided by private credit lenders. With falling interest rates tightening credit spreads, the broadly syndicated market roared back in 2024 to recapture the market share that invest -
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