Private Credit, Bank Rivalry Spurs ‘Race to the Bottom,’ Moody’s Says
- Banks, direct lenders will continue to compete on price, terms
- Higher-quality credits will still go broadly syndicated market
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The competition between banks and direct lenders in the leveraged buyout arena will likely result in more defaults as riskier debt deals get done, according to Moody’s Investors Service.
Private credit firms and banks have been in a tug of war over financing new deals, with direct lenders raising huge amounts of capital to do so. Following a contraction in buyout activity over the last two years, Moody’s says it expects dealmaking to rebound in 2024. Increased competition to finance those mergers and acquisitions will fuel systemic risks as pricing, terms and credit quality erodes, analysts including Christina Padgett wrote in a note Thursday.