Private Lenders Spy Opportunity | Seeking Alpha

Private Lenders Spy Opportunity | Seeking Alpha

glowing graph 2

Jonathan Kitchen

By Susan Kasser, CFA

As banks have fled the syndicated-loan market, private lenders potentially stand to gain by picking up the slack.

What’s bad for banks may spell opportunity for private lenders: As rate hikes, geopolitical turmoil and slowing economic growth continue to stoke market volatility, banks that typically guarantee loan deals for private equity (PE) firms have retreated under a pile of unsold debt—thereby opening the door for private lenders to take significant market share in the coming months.

Issuance of both broadly syndicated loans (BSL) and high-yield bonds have fallen off a cliff in 2022. At just $14 billion, BSL issuance in the third quarter was the lowest we’ve seen since the fourth quarter of 2009.1 As banks have pulled back, private lenders are stepping in to serve high-quality, upper-middle-market borrowers on relatively attractive terms.

First, companies are borrowing at steeper rates to attract financing amid the uncertainty: Over the first three quarters of 2022, credit spreads over LIBOR have risen 50-to-100 bps—the largest nine-month increase we’ve seen on record.2 Original issue discounts (OIDs) have risen a similar amount, too.3

Second, borrowers are not generally as indebted as they were a year ago, potentially reducing risk for private lenders. Since the end of 2021, average leverage (measured as the ratio total debt to EBITDA) has fallen to 5.3x from 5.8x.4

We think the shift toward private lending will continue over the near- to-mid-term as banks retrench further and PE firms seek to deploy a record amount of dry powder—$561 billion as of September 30, up from $227 billion in 2013.5

With fewer willing BSL partners in the mix, we believe more PE firms will look to partner with private lenders to get deals done. As of September 30, Neuberger Berman’s private-debt team had reviewed 62% more potential investment opportunities compared with the same period last year. The pipeline, in our view, remains strong.

Notes: (1) S&P Leverage Commentary & Data (LCD); (2) Refinitiv (LPC), KBW Research; (3) Ibid; (4) Lincoln Middle Market: Lincoln International Valuations and Opinions Group; (5) Preqin.

This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.

Commodity futures and forward contract prices are highly volatile, and the commodity markets can also lack sustained movements of prices in one direction, whether up or down, for extended periods. Participation in a market that is either volatile or trendless could produce substantial losses. Price movements of commodity interests are influenced by, among other factors: changing supply and demand relationships; governmental, agricultural and trade programs and policies; climate; and national and international political and economic events. None of these factors can be controlled by the manager.

Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit for the specific entities and jurisdictional limitations and restrictions.

The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.

© 2009-2022 Neuberger Berman Group LLC. All rights reserved.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Source link

Related post

Elon Musk doesn’t give recognition to his $600,000 worth cryptocurrency statue

Elon Musk doesn’t give recognition to his $600,000 worth…

Elon Musk, CEO, Tesla, has reportedly given the cold shoulder to a $600,000 monument of him in the form of a…
Two communities find a cure for medical debt: pandemic stimulus funds

Two communities find a cure for medical debt: pandemic…

Local governments in Ohio and Illinois are using American Rescue Plan Act money to relieve residents struggling with medical debt by…
Researcher believes bitcoin may become as important as the internet

Researcher believes bitcoin may become as important as the…

“Cryptocurrency is primarily a private currency, which unlike ordinary fiat money isn’t controlled by the state,” says Svein Ølnes, a senior…

Leave a Reply

Your email address will not be published.