Cloud 9fin
Private credit terms in the time of tariffs
Apr 23, 2025
Sheel Patel, a partner and head of New York private credit at Mayer Brown, dives into the current landscape of private credit amidst fluctuating US tariff policies. He discusses how these changes lead to more borrower-friendly credit terms and the evolving dynamics between lenders and sponsors. Patel emphasizes the importance of Payment-in-Kind flexibility for direct lenders and outlines strategies to navigate risks associated with distressed portfolio companies. His insights shed light on adapting lending practices in a volatile market.
14:49
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Quick takeaways
- The recent volatility in US tariff policy has forced private credit lenders to enhance due diligence to safeguard investments against unexpected market disruptions.
- Lenders are transitioning towards more protective deal structures and fostering partnership approaches with portfolio companies amid rising interest rates and economic uncertainty.
Deep dives
Shifts in Market Dynamics
The private credit market has undergone significant changes recently, driven by a shift in borrower-lender dynamics. Initially, there was optimism regarding M&A activity, with lenders becoming more accommodating by offering favorable terms and fewer protections. However, recent market uncertainties have prompted lenders to reevaluate their stance, resulting in an increase in less protective deal structures such as CoveLite and CoveY deals. This shift emphasizes the delicate balance lenders must maintain between securing profitable contracts and navigating the current tumultuous economic environment.
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