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Returns in the Private Credit Lending Market Are Falling and the Risks Are Rising

  • Majority of deals last year offered margins below 7%
  • Covenants are getting weaker, and in some cases leverage rises

As investors pile into the more than $1 trillion private lending market in search of higher returns, they’re finding that yields are shrinking and risk is rising.   

Private credit is pitched to investors as a way to earn more yield than bank loans offer, in exchange for tying up capital for longer. But with so much money pouring in, the majority of deals last year offered margins below 7%, according to a report by Proskauer Rose LLP seen first by Bloomberg. Of the transactions surveyed by the law firm, 87% were priced below that threshold, an increase from 76% in 2020 and a more than five-fold rise from 2015, where the rate was just 17%.