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Private Credit Boom Celebrated and Feared at Chicago Confab

Kelsey Butler

(Bloomberg) -- Private credit’s biggest players gathered at Chicago’s Four Seasons’ hotel this week to discuss a world that’s expanded to about $776.9 billion. At the fore were concerns about cutthroat competition and deal quality.

Here are some key takeaways from participants interviewed at the SuperReturn Private Credit event, where about 300 investors from pension funds to family offices registered, a 10% jump from last year, based on initial estimates.

Taylor Boswell, chief investment officer of Carlyle Direct Lending:

“In direct lending, we’re seeing more international demand, more insurance demand and more interest from smaller institutional investors, each with different structural and co-investment considerations.”

A slowdown in private credit fund-raising is “more of the maturation of the industry and not the rollover of the industry,” he said. “What’s driving this market is fundamentally sound, but there is some late cycle behavior so you have to pick your spots.”

Jessica Lee, managing director at Barings Global Private Finance:

“There’s plenty of dry powder and the deal volume has been similar, but the overall quality hasn’t been as great as last year. We’re now into the 10th year of the bull market and people are that much more vigilant about creating a defensive portfolio that can withstand a downturn and with a stronger emphasis on quality.”

“I do think it’s very competitive in the senior debt side -- a lot of money has been raised. It’s still very competitive in the market, but there’s still a lot of opportunity.”

The firm expects to see “fairly robust” deal activity from existing portfolio companies that need incremental debt as they grow, Lee said.

Randy Schwimmer, head of origination and capital markets at Churchill Asset Management:

“Covenant-lite is a cyclical product, particularly in the middle market. It disappeared during the credit crisis, and I suspect the same will happen in the next downturn,” he said. “Even with a covenant though, we get concerned when the cushion between projected performance and the test is so wide, it’s of little value.”

Brett Hickey, CEO and founder of Star Mountain Capital:

“As definitions of strategies within credit have morphed, where for example senior debt goes into senior stretch, it’s important that investors look at the assets themselves and not just the category. That’s when things like leverage attachment points matter.”

Hickey went on to say that “credit is now becoming a more specialized business, with more niche strategies emerging and investors are looking for those specialized strategies.”

Ted Koenig, CEO and president of Monroe Capital:

“Investors are demanding consistency and returns. When it comes to covenants, it’s not so much about the ideal of having them or not, it’s about what you do with them. Are you monitoring them? Are you taking aggressive action on them? It’s really a question of what the lender is going to do with covenants and how they are managed. That becomes the technique to mitigate losses.”

(Adds Monroe Capital quote in final paragraph)

To contact the reporter on this story: Kelsey Butler in New York at kbutler55@bloomberg.net

To contact the editors responsible for this story: Natalie Harrison at nharrison73@bloomberg.net, Adam Cataldo, Sally Bakewell

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