Moody's Talks - Focus on Finance
Private lenders pile up cash, compete for LBOs, driving up risk
Oct 18, 2023
Private credit lenders compete with banks for leveraged buyouts, increasing risk. Concentration of private credit among a few major asset managers raises concerns. Affiliation of asset managers and insurance companies contributes to an expanding lending loop. Benefits and risks of insurers partnering with asset managers in private credit sector are examined.
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Quick takeaways
- Increased competition between private credit lenders and syndicated bank loans in the revival of LBO activity poses challenges in identifying potential risks.
- Concentration risk arising from dominant asset managers' lending ecosystems jeopardizes the middle market segment's financial strength and poses systemic risks.
Deep dives
LBO competition reviving in 2024 with private credit lenders and syndicated bank loan market competing
LBO activity is expected to revive in 2024, leading to increased competition between private credit lenders and rated syndicated bank loans. Private credit lenders, being less regulated, present challenges in identifying potential risks. In Europe, aggressive rate hiking has halted LBO activity and created opportunities for private credit lenders. However, concentration risk arising from a few dominant asset managers poses systemic risks and jeopardizes the financial strength of the middle market segment.
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