Soren Christensen, partner at Cinven with extensive experience in leveraged finance, and Amit Bahri, co-head of European Direct Lending at Goldman Sachs, dive into the evolving world of private credit. They explore the shifting dynamics between banks and private credit firms, highlighting changing borrower preferences and strategies. The duo discusses the implications of the returning BSL market, the appeal of junior PIKs, and what the next few years might hold for M&A activity and lending trends as market conditions stabilize.
The evolution of private credit in Europe has shifted from reliance on banks to a more nuanced role involving institutional investors and innovative financing solutions.
Despite the normalization of the BSL market, demand for private credit is projected to grow due to its flexibility in complex transactions, especially heading into 2025.
Deep dives
The Evolution of Private Credit
The podcast highlights the significant evolution of private credit in Europe, tracing its growth from a dependence on traditional bank financing to a more complex landscape involving institutional investors. Initially, private equity firms like Sinven were heavily reliant on banks for financing until around the early 2000s when the institutional market began to emerge, leading to the creation of Collateralized Loan Obligations (CLOs). As private equity deals grew in size, the need for larger financing solutions prompted firms to adapt by forming dedicated capital markets teams to engage with the evolving credit landscape. This evolution culminated in significant milestones, such as Sinven's pioneering of the first pick in Europe, signaling a broader acceptance and utilization of private credit instruments.
Direct Lending's Market Dynamics
Amit Bari discusses how Goldman Sachs has developed into one of the largest direct lending funds globally, emphasizing its growth in tandem with the market. The firm’s journey into private credit began in the mid-90s, and by 2008, it had launched its first senior direct lending fund. The relationship with private equity firms, particularly with Sinven, has been essential in navigating the changing landscape, especially as the Broadly Syndicated Loan (BSL) market became dislocated. This development has allowed direct lending to fill vital gaps, enabling continued financing of deals when traditional avenues faced constraints.
Private Credit vs. Broadly Syndicated Loans
A deep discussion emerges on the comparative advantages of private credit versus broadly syndicated loans (BSLs), revealing key insights into the processing and execution of financing deals. Private credit often allows for a streamlined process, enabling borrowers to negotiate directly with lenders and lock in terms without navigating the complexities of syndication. Conversely, the BSL market can provide a larger pool of capital through structured vehicles like CLOs, but often at the expense of flexibility and speed. Despite these differences, both markets are evolving closer together in terms of size and document standards, leading firms to increasingly assess which avenue serves their needs best on a case-by-case basis.
The Future Outlook for Private Credit
The discussion wraps up with an optimistic outlook for private credit, emphasizing its continued relevance in the evolving financial landscape. Both Amit and Soren agree that despite the recent normalization of the BSL market, the demand for private credit remains strong, particularly for large and complex transactions where bespoke financing solutions are essential. They project an increase in M&A activity in 2025, fueled by the growing sophistication of both borrowers and lenders in crafting innovative capital structures. Real-world considerations, such as current market conditions and investor behaviors, will continue to shape the private credit environment, ensuring that it remains a fundamental player in corporate financing.
People love to talk about the battle between banks and private credit firms in leveraged debt markets. And at a high level, it’s true that the dealflow has bounced back and forth between the two over recent years — but markets are a lot more complex than a game of table tennis.
In this episode of Cloud 9fin, Synne Johnsson sits down with Soren Christensen, partner and head of capital markets at Cinven, and Amit Bahri, co-head of European direct lending at Goldman Sachs, to break down how private credit’s role has evolved over the years.
Among the highlights: how sponsors have adapted to embrace private credit, what the return of the BSL market means for direct lender strategies, the attraction of junior PIKs, and predictions for 2025.
As always, if you have any feedback for us, send us a note at podcast@9fin.com.
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