Competition — not the wobbly economy or ongoing geopolitical issues — is the greatest challenge for private credit lenders. That’s because the asset class is becoming so popular, according to a recent survey by law firm Proskauer Rose. Healthy dry powder levels continue to be the most important driver of dealflow, and lenders believe borrowers see the speed of decision-making as one of the best advantages of private credit, the survey found.

“Private equity sponsors, in particular, love that they can sign up a deal with one or two lenders vs. selling debt down the market in a syndicated deal,” noted Evan Palenschat, a Chicago-based partner at Proskauer. “That can carry a lot of risk if the market goes soft, and sponsors and borrowers alike love the certainty that private credit terms offer.”

The attraction to this burgeoning asset class hasn’t gone unnoticed, as new firms enter the market every quarter.

“There has been a growing interest in private credit from both lenders and borrowers over the past decade. As the public markets have had dramatic swings in recent years, new entrants – both lenders and borrowers – have moved into the space, drawn by the industry’s resilience,” said Stephen A. Boyko, co-chair of Private Credit at Proskauer. “As the macro economic environment continues to change and the syndicated markets remains volatile, we expect to see more interest in private credit than ever before, especially in the U.S., UK, Mainland Europe, Canada and Asia.”

Simply put, private credit allows companies to raise capital from private lenders, who then may charge interest payments and/or impose covenants and other collateral to secure the loans. This asset class has mushroomed in size over the last decade, according to the law firm’s 2022 Trends in Private Credit report released this month.

Blackstone is observing the same trend. In a recent report, it noticed borrowers enjoy the “benefits and flexibility of working with a private lender”, and lenders can also “act as partners” to borrowers, which can be a plus in difficult market environments.

Blackstone and Proskauer are anticipating more interest in private credit in the future. The market has proven its buoyancy, and private credit lenders are clearly riding the crest of a wave. More than 80 percent of Proskauer’s survey respondents said they were currently raising a debt fund, and more than 90 percent plan to fundraise this year. Even though deal activity is down from 2021, there’s plenty of private equity money to spur M&A activity across all sectors, and there’s enough financing capital to support these deals. Overall, private credit lenders are especially keen on investing in business services, healthcare, software and other technology deals.

-Cheryl Meyer