Private Credit Prevails Amid Stress

Historically high recovery rates in loan investments have seen a decline, with private credit markets potentially experiencing lower default rates compared to public markets. In private credit, lenders often prioritize preventing defaults, facilitating amendments and covenant waivers that lead to better recovery outcomes. Although stress levels remain similar, the leverage in current times exceeds that of previous crises, resulting in lower recovery rates during restructuring for both markets. Public markets suffer from a lack of covenants, granting owners prolonged control that can hinder investment, while private credit’s covenants enable more proactive dialogues between lenders and borrowers, potentially mitigating the impairment of assets.