By Nupur Anand and Saeed Azhar
NEW YORK (Reuters) -Tariff uncertainty and market volatility have sent some companies looking for a flexible, more certain route to funding from private credit firms, resulting in the spurning of traditional lenders in some cases.
A number of companies have selected loans from private credit providers over traditional forms of credit since the beginning of April when back-and-forth policy over tariffs created market choppiness. Analysts and bankers forecast that private credit, a $2 trillion industry that has grown from $500 million a decade ago, benefited from the volatility.
“When you have volatility, it becomes relatively harder for the banks to place new deals into the syndicated loan market,” said Mike Koester, a former Goldman Sachs executive who co-founded 5C Investment Partners, a private credit investing firm.
“And that is when private credit takes more share because it already has the capital and it can lend directly where it is required.”
Recent examples have been Lakeview Farms, which sought to fund its $200 million buyout of yogurt-maker Noosa in April. Lakeview chose to obtain a loan from private credit firm Silver Point Capital because it offered more flexible financing than traditional lenders like banks via the syndicated loan process, two sources told Reuters. Citigroup was initially leading the loan talks, one of the sources said.
Citi declined to comment. Lakeview did not respond to a Reuters query for comment.
In another transaction, Blackstone and Apollo Global Management jointly led the private credit financing of about $4 billion for Thoma Bravo’s acquisition of Boeing’s Jeppesen navigation unit alongside other investors, two sources said.
“At the moment, private credit is very competitive,” said Ted Swimmer, head of capital markets and advisory at Citizens Financial, which sometimes competes with private credit companies. It also lends to them and works with them on deals. “We were structuring a couple of syndicated loans but we could not price those loans competitively given the market volatility and lost the deals to private credit bids.”
The total number of syndicated loans in the U.S. declined by 15% between January and May 21 versus the same period last year, according to Dealogic, as bankers said volatility in markets slowed public markets.
Direct lending transactions – which directly compete with the syndicated loan market and usually involve a handful of private credit funds – have fallen at a slower pace of 10% in the first quarter from the same period a year earlier, PitchBook’s Leveraged Commentary & Data shows.
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