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Octus on Credit: End of private credit’s golden age? Ares, Eurazeo, Goldman Sachs lead asset class’ continued growth…
Oscar Laurikka, Director, DACH Deal Origination Reporter
The effective withdrawal of European banks from leveraged finance in 2022 meant direct lenders had everything their own way for a bit. With no alternative to finance their leveraged buyouts, private equity firms were forced to pay up for expensive unitranche facilities provided by clubs of direct lenders and with interest rates reaching their nadir, some private debt funds even outperformed their private equity counterparts.
Last year was somewhat of a reversion to the mean. Banks refinanced many of the larger deals they had lost to the direct lenders in previous years, and higher competition for deals across all size brackets meant that unitranche margins tightened considerably across the board, from around 659 bps over the reference rate in Q4 2023 to around 523 bps over Q4, according to Octus’ Private Credit Dashboard.
The overall deal stats show that the asset class continued to grow in Europe as Octus recorded more direct lending deals in 2024 than any previous year. Of course this was heavily driven by the financing of add-ons for existing portfolio companies, which continued to be the most common use of proceeds in 2024. But it also demonstrated the resilience and adaptability of the asset class as many direct lenders that had been active on large club deals in previous years refocused on the middle market as deals with less than €250 million of debt, accounted for 75.5% of the total activity.
In addition to this, direct lenders have continued to participate in larger deals, despite the banks’ resurgence. So the “Golden Age” may be over but direct lending has proved in 2024 that it is here to stay.
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