INTRODUCTION Contributed by: Stelios Saffos, Dan Seale, Peter Sluka and Alfred Xue, Latham & Watkins
ally, the UK’s focus on sustainable finance and ESG considerations is also shaping the private credit landscape, with an increasing number of private credit funds incorporating ESG criteria into their investment strategies. Terms, covenants and documentation Initially, the growth of private credit deals was mainly driven by the tighter terms, covenants and documentation that govern these trans - actions. Investors sought to either drive terms that were creditor-friendly or have influence in any given credit by holding positions that were far larger than traditional holds of institutional investors in collateralised loan obligation (CLO) driven broadly syndicated deals. As the market has evolved and matured, these terms have seen a loosening in the market as a result of the expansion of the private credit market and the increased competition brought on by new market entrants. That said, private credit agreements often con - tinue to feature bespoke terms tailored to the specific needs of the borrower and the risk appetite of the lender. Documentation in private credit deals is becoming increasingly sophisti - cated, reflecting the complexity of the transac - tions and the need for clarity and precision. The rise of covenant-lite or covenant-loose struc - tures, which feature fewer financial maintenance requirements on borrowers, has been a notable trend, particularly in larger deals. However, this has also led to increased scrutiny from investors and regulators, who are concerned about the potential for weakened lender protections. As a result, the most sophisticated and established private credit providers are continuing to place greater emphasis on the quality and tightness of underwriting and documentation. The most sophisticated and established private credit
shops are also focused on going back to basics with sole underwriters or tighter club deals remaining a focus and preference over larger, more aggressive deals that resemble broadly syndicated deals. The rise of asset management M&A and other asset classes The private credit market is not only expanding in terms of volume but also in the diversity of asset classes it finances. One of the most sig - nificant trends in recent years has been the rise of asset management mergers and acquisitions (M&A), driven by the need for scale and diversi - fication. Asset managers are increasingly turning to private credit to finance these transactions, leveraging its flexibility and speed of execution. This trend is exemplified by high-profile deals such as BlackRock’s acquisition of HPS and Clearlake’s purchase of MV Credit, which high - light the strategic importance of private credit in facilitating growth and consolidation in the asset management industry. Beyond traditional sponsor finance and cor - porate borrower transactions, private credit is also being used to finance a wide range of other asset classes, from real estate and infrastructure to technology and healthcare. In the real estate sector, private credit is playing a crucial role in financing development projects and acquisi - tions, particularly in the face of tightening bank lending standards. In infrastructure, private credit is being used to fund large-scale projects, such as renewable energy developments, that require significant capital investment. The technology sector, with its rapid pace of innovation and growth, is also a key area of focus for private credit providers, who are keen to support companies with scal - able business models and strong growth poten -
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