Recent fundraising for credit secondaries coupled with solid BDC earnings and supportive insights from managers’ earnings calls is painting a positive picture for the private credit market.
In fact, in a Bank of America research report issued this week, analysts noted the 鈥渟tuck capital鈥� resulting from GPs not able to generate enough distributions for their LPs has 鈥済iven birth to a burgeoning private secondary market.鈥� Secondaries volume reached $160bn in 2024, and fundraising for secondaries strategies has generated about $200bn in dry powder.
Apollo this week announced the close of its debut secondaries fund, which raised about $5.4bn in its final close. The Apollo S3 Equity and Hybrid Solutions Fund I focuses on net asset value loans and GP lending across asset classes. Meanwhile, Coller Capital, Barings and Ares raised $2.4bn for a structured funding vehicle that will also invest partially in private debt.
It was only last month that Pantheon raised a $5.2bn for its Senior Debt III fund that invests in senior secured, floating-rate, sponsor-backed debt across LP fund and GP-led deals.
The activity shows that there鈥檚 insatiable appetite for private credit, and, even without a robust M&A market, there are creative ways to ensure liquidity in the asset class.
鈥淥ver the last decade, private credit AUM has grown to a nearly $2 trn asset class,” said Matthew Pellegrino, managing partner of Corso Capital Advisors. “Within that market, there is a growing mid-life opportunity to provide liquidity to an estimated $200bn-$300bn of value that sits in private credit funds that are past their investment periods. With the continued growth of global private credit AUM, we’re seeing a rapid acceleration in private credit secondaries volumes.”
Turning to primary
With broadly syndicated loan issuance pulling back 鈥� issuance is roughly 15% behind last year鈥檚, according to BofA 鈥� there may be more opportunity for direct lenders in the primary. Private credit鈥檚 certainty of close and certainty of pricing can offer a real advantage in times of uncertainty and a fickle institutional loan market.
Issuers who are 鈥渟hut out鈥� of the public debt markets are expected to tap the private market. Deals were essentially getting done at just 140bps over the BSL market, BofA noted, but the volatility may change that. Currently, spreads remain relatively unchanged from before 鈥淟iberation Day鈥� after a slight uptick mid-April that disappeared quickly.
A read through quarterly earnings transcripts reveals that portfolio managers are largely in agreement that volatility may indeed be a good thing for direct lenders.
BDC Ares Capital Corp. (ARCC) made $3.5bn in new commitments during Q1, including $2.2bn of funded investments. The lender sees the current environment as an 鈥渋nteresting opportunity.鈥�
鈥淐ertain transactions that previously would have gone to the broadly syndicated loan market have instead begun to explore private credit solutions,鈥� incoming ARCC CEO Kort Schnabel said.
Blue Owl Capital, meanwhile, echoed the sentiment with Co-CEO Mark Lipschultz saying on its earnings call: 鈥淐urrent market volatility is accruing to the benefit of private lenders, and we鈥檙e having a fairly robust level of discussions.鈥�
Blue Owl saw its portfolio grow by $4.5bn during the quarter, largely due to add-on activity among borrowers and fewer refinancings.
There doesn鈥檛 seem to be concern for a slowdown in private credit.
As Sixth Street BDC鈥檚 Joshua Eastly put it: 鈥淧eriods of heightened volatility often present the most attractive investment opportunities.鈥�
Insight of the Week
Over the last decade, private credit has emerged as a viable lending option even when 鈥� and especially when 鈥� other public financing avenues are closed. Now direct lenders are adopting AI technology to solidify their upper hand in quickly deploying capital.
In prior periods of market dislocation 鈥� such as Covid and the Ukraine War downdraft in 2022 鈥� direct lenders鈥� certainty to close gave it an edge. Now, amid tariff uncertainty, managers can quickly identify portfolio risks with exposure and even analyze the impact of tariffs on comparable credits.
The main driver for using AI is the speed at which managers can perform comprehensive due diligence. The technology is especially useful for analysis that might otherwise go undone. And while banks could also use AI, private credit is able to move faster to adopt and implement the technology, notes Mike Conover, CEO of Brightwave, an AI research assistant that generates financial analysis on any subject.
At a time of economic uncertainty and unknown implications of tariffs, AI is emerging as a 鈥渕ust have鈥� tool for managers to gauge exposure.
鈥淚t鈥檚 the topic du jour,鈥� said Conover, noting there鈥檚 been 鈥渂risk demand鈥� as credit managers seek ways to improve their investing workflows. 鈥淎 lot more asset managers are getting off the sidelines.鈥�
Private Credit Deals
On the new M&A front, cookie chain听颁谤耻尘产濒听is seeking around $500mn to finance an acquisition of the company by TSG Consumer Partners. Blackstone and Golub are said to be arranging the financing.
Direct lenders have been canvassed to back the acquisition of听Entegra, a technology provider to pipeline operators, off LTM EBITDA of roughly $20mn.The company, currently owned by Amberjack Capital Partners, is expected to have a low-teens valuation. Amberjack, then operating as Intervale, acquired Entegra in 2016.
An investor group led by Blackstone is providing Turkey’s听Dream Games听with an all US-dollar debt financing to support its investment from CVC, according to sources. The sponsor will become the sole equity partner to Dream Games, buying out the venture capital partners who have been invested in the company for five years.
Churchill Asset Management and FS Investments provided the debt financing for MPE Partners鈥� LBO of听Central Coated 乱伦短视频听补苍诲听Sun America. The merger of the two companies has created a food-packaging platform company.
Wheeler Fleet Solutions听obtained a senior secured debt financing agented by Comvest Credit Partners, which was the sole lender, to back a carve-out acquisition by One Equity Partners. VSE Corp. divested the borrower, selling the Wheeler Fleet to OEP for up to $230mn.
NOVA Infrastructure and Orion Infrastructure Capital have committed more than $250mn in growth capital as part of their investment in听DartPoints, a cybersecurity company for data center operators. OIC provided a senior secured credit facility as part of the transaction.
Additional details of already-disclosed deals came to light. Oaktree听Capital Management revealed on its publicly traded BDC鈥檚 earnings call that it held half of听Barracuda Networks鈥� $200mn incremental听first-lien term loan last month.
The loan is sitting alongside Barracuda鈥檚 syndicated first- and second-lien debt and was used to bolster liquidity. KKR Capital Markets was lead left arranger on the loan, which has a coupon of S+650 with a 1% floor and was issued at 97.
In addition, Oaktree also revealed that it held $425mn of the $2.5bn first-lien term loan and $77mn of the $450mn revolver that supported Carlyle鈥檚 acquisition of听Vantive听from Baxter International. It priced at S+500.
Refinancings and recapitalizations continued aplomb this week.听Evolucion Innovations, a retailer of outdoor fitness equipment, received a $60mn senior secured credit facility from MidCap Financial to refinance existing debt as well as get working capital.
Dominion Packaging听landed debt financing from Backcast Partners to support a recapitalization and growth capital expenditures. It also made a convertible preferred equity investment and received warrants. Truist provided a revolver.
Encina Private Credit provided the first-out tranche for a debt financing for听Impact Climate Technologies听(ICT) to refinance debt and back the growth of the borrower. Platinum Equity’s credit arm also participated, leading the debt financing. Encina was the administrative and collateral agent for the transaction.
Heidtman Steel听received a $245mn senior secured loan from WhiteHawk Capital Partners and BMO Bank NA to refinance existing debt. The former provided a $60mn term loan, while the latter agented a $185mn asset-based revolver.
There was a decent amount of activity in the life sciences sector.
Exagen, which provides diagnostics for patients with autoimmune conditions,听received an up-to-$75mn senior secured term loan from Perceptive Advisors, with $25mn funding at closing, to support a refinancing. The initial tranche helped retire the borrower鈥檚 existing facility with Innovatus Capital Partners that it got in 2021.
DarioHealth听obtained a $50mn facility from Rand Capital and Callodine Group to refinancing existing debt that will support the borrower鈥檚 growth of its software platform that helps its users manage chronic conditions. DarioHealth got $32.5mn at closing. Another $17.5mn commitment is available for drawdown at the firm鈥檚 discretion upon hitting certain revenue thresholds.
Voom Medical Devices听received venture debt from Avenue Capital Group as part of a $30mn combined debt and series B equity financing. Funds will support the commercialization of Voom鈥檚 products and finance the development of the firm鈥檚 surgical technologies and techniques, including for minimally invasive foot surgery device.
Biohaven Pharmaceutical Holding Co.听may receive up to $600mn in the form of multi-tranche senior secured notes from Oberland Capital. An initial tranche of $250mn of senior secured notes was funded at close.听Oberland will get 6.25% of the royalties on the future global net sales of its troriluzole drug, which supports a genetic, neurodegenerative condition, for a maximum of 10 years after closing.
OneShield Software听received debt financing from Bain Capital Credit and Accel-KKR Credit Partners. Accel-KKR provided a senior tranche, while Bain provided junior debt. The funding was to provide growth capital.
This week in restructuring,听International Data Group鈥檚 private lenders converted a portion of their debt to equity in a restructuring of the Blackstone-backed company. A portion of the remaining loan was put at PIK interest. Blackstone acquired the company in November 2021 for an enterprise value of $1.3bn with an original buyout financing of $800mn. Blackstone鈥檚 credit arm was also a lender to IDG.
Meanwhile, lenders to听InMoment, a provider of customer experience management software, hired Paul Hastings as legal counsel as the borrower seeks to address about $100mn of debt that was accelerated to come due in about a year.听The original loan was a recurring revenue loan that totaled about $200mn.
Funds and People
Apollo Global Management closed a pair of funds this week. The firm raised $8.5bn for its opportunistic multi-strategy opportunistic credit fund across the听Apollo Accord+ Fund II听and separately managed accounts. The Accord+ vehicle is a multi-strategy opportunistic credit fund. It targets both private corporate loan and asset-backed debt, and may invest in debt on the secondary market, depending on market conditions.
In addition, Apollo raised $5.4bn for its听Apollo S3 Equity and Hybrid Solutions Fund I, which will target secondaries transactions for private credit funds and private equity funds as well as NAV lending and GP lending.
Also in secondaries, Coller, Barings Portfolio Finance and Ares Management Alternative Credit raised a $2.4bn structured funding vehicle that will also target stakes in private credit and private equity funds.
In addition, J.F. Lehman & Co. closed听JFL Credit Opportunities I, a GP-led secondaries transaction that created effectively a continuation fund of debt investments previously indirectly held by JFL Equity Investor VI. Pantheon and Stepstone Group also invested in the transaction. That fund has positions in middle-market companies within JFL鈥檚 target sectors: aerospace, defense, government, maritime, environmental and infrastructure. The strategies for the fund span secondary direct lending, syndicated credit and distressed situations.
On the asset-backed credit front, the DE Shaw Group has raised $1.3bn for its Diopter Fund II, which will pursue significant risk transfer deals, which comprise synthetic securitizations to help financial institutions manage risk.
There were a bevy of new hires and promotions this week. Among them听Jason Breaux听was named head of private credit at Crescent Capital Group. He has been with the firm since 2000 and will still hold executive roles at the firm鈥檚 two BDCs.
Canyon Partners hired听William Im听to support Canyon鈥檚 private credit business. He joins from BlackRock as a managing director where he was in the firm’s global credit opportunities group.
Eldridge Capital Management has hired听Leo van den Thillart听补苍诲听Robert White听as executives in the firm鈥檚 capital formation group.
Thillart will serve as global head of capital formation, driving Eldridge鈥檚 expansion spanning North America and Europe, Middle East and Asia. He was previously an executive at CBRE.
White will join as Eldridge as the Americas head of capital formation, in which he will help build, among others, institutional relationships. Previously he held senior roles at Brookfield.
This week also saw the continued push by GPs and wealth manages to offer private credit to retail investors.
Financial advisory firm听Edward Jones听plans to offer private credit and other alternative investments to its high-net-worth investors in partnership with听CAIS. The relationship with CAIS will allow Edward Jones to expand its offering of alternative investments. CAIS offers a technology platform with access to many of the largest private credit investors.
Also,听Yieldstreet听will purchase buy-now, pay-later loans from Flex Pay and will allow retail investor to invest in BNPL loans. The first deal closed last month with travel loans from airlines and cruise lines.
Krista Giovacco
krista.giovacco@levfininsights.com
+1 917 757 6399
