{"id":69037,"date":"2024-05-07T09:55:26","date_gmt":"2024-05-07T13:55:26","guid":{"rendered":"https:\/\/www.bloomberg.com\/professional\/insights\/markets\/private-credit-margins-squeezed-as-competition-risky-loans-rise\/"},"modified":"2024-08-19T11:37:49","modified_gmt":"2024-08-19T15:37:49","slug":"private-credit-margins-squeezed-as-competition-risky-loans-rise","status":"publish","type":[3762],"link":"https:\/\/www.bloomberg.com\/professional\/insights\/markets\/private-credit-margins-squeezed-as-competition-risky-loans-rise\/","title":{"rendered":"Private credit margins squeezed as competition, risky loans rise"},"content":{"rendered":"<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-6a0878ecb3d1c]::before {\n\t\t\t\tbackground-color: #eeeeee;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--eeeeee text--black bbg-row--full-bg-bleed\" data-anchor='row-6a0878ecb3d1c'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8 bbg-column--valign-bottom\"\n    style=\"\"\n    >\n    <p>    <ul class=\"bbg-categories_list\">\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/financial-services\/\" rel=\"category tag\">\n                    Financial Services\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/markets\/\" rel=\"category tag\">\n                    Markets\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/trading\/\" rel=\"category tag\">\n                    Trading\n                <\/a>\n            <\/li>\n            <\/ul>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 24px !important\"\n    >\n<\/div>    <h1 class=\"bbg-metadata bbg-metadata--title\">Private credit margins squeezed as competition, risky loans rise<\/h1>\n<\/p>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a0878ecba7be'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer\"\n        style=\"height: 40px !important\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><strong>Functions for the Market<\/strong><\/p>\n\n<\/div>\n    <p class=\"bbg-metadata bbg-metadata--date\">May 7, 2024<\/p>\n<\/p>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a0878ecbd322'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Background<\/h2>\n<p>Private credit lenders face margin pressure at a time the rivalry from US banks intensifies and Moody\u2019s Ratings warns against rising problem loans in the flourishing $1.7 trillion industry.<\/p>\n<p>Kohlberg Kravis Roberts &amp; Co., Oak Hill Advisors Inc. and Blue Owl Capital Inc. led 2024\u2019s direct lending 29% higher after a record 2023. Loan margins, however, have been lower as a whole as banks compete to reclaim lost ground in the syndicated lending market. Bloomberg Intelligence forecasts diminishing dividend growth prospects at private credit firms\u2019 business development companies amid slowing earnings expansion.<\/p>\n\n<\/div>\n<div class=\"bbg-interstitial\" aria-label=\"interstitial\" tabindex=\"0\">\n\t<style>\n\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\tbackground:rgba(0,0,0,0);\n\t\t\tpadding: 104px;\n\t\t\t\n\t\t\t\n\t\t}\n\t\t.bbg-interstitial #card_1.bbg-card_hasCta .bbg-card__content, .bbg-interstitial #card_1.bbg-card_hasCta .bbg-card__content p{\n\t\t\tcolor:inherit;\n\t\t}\n\t\t@media (max-width: 768px) {\n\t\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 32px;\n\t\t\t}\n\t\t}\n\t\t@media (max-width: 480px) {\n\t\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 18px;\n\t\t\t}\n\t\t}\n\t<\/style>\n\t<div class=\"wpb_content_element bbg-card  bbg-card-dark bbg-card_hasCta has_interstitial\" id=\"card_1\" data-card_type=\"no_image\">\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n      \n                      <h3 class=\"bbg-card__title\">Get private credit insights delivered straight to your inbox.<\/h3>\n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><p>Sign up<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_7417437896839976032\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/insights\/newsletter\/private-credit-digest\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6a0878ecc244e'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>The issue<\/h2>\n<p>Moody\u2019s on April 19 <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2024-04-18\/three-private-credit-funds-get-moody-s-warning-on-problem-loans\">reduced its outlook<\/a> for direct lending funds managed by BlackRock Inc., KKR &amp; Co. alongside FS Investments and Oaktree Capital Management, lowering them to negative from stable. The publicly traded business development companies have increased the number of loans on non-accrual status, exposing them to the risk of losing money on those investments. Declining earnings led Oaktree Capital Management to <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2024-05-01\/oaktree-cuts-fees-on-private-credit-fund-after-earnings-decline\">cut management fees<\/a> on a private credit fund aimed at individual investors by a third.<\/p>\n<p>Direct lending in the US jumped by 28.8% so far in 2024 from a year ago with KKR leading the charge and <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2024-05-01\/kkr-first-quarter-profit-tops-estimates-after-earnings-overhaul\">surpassing estimates<\/a> for first-quarter profit. The ranking is based on information disclosed by verified sources, which can be incomplete.<\/p>\n<p>\u201cDouble-digit earnings growth momentum at business development companies appears to be near an end, as base rates peak and spreads compress, curbing asset yields,\u201d Ethan Kaye, Bloomberg Intelligence\u2019s analyst, wrote. Though consensus still sees 2024 interest- and dividend-income growth at Ares Capital and Blackstone Secured, due largely to a more constructive view on portfolio growth, it\u2019s at a much-moderated 6% and 7% respective pace. FS KKR and Blue Owl may post declines, the report said.<\/p>\n<p>Analysis of corporate loans of at least $200 million originated by private credit lenders shows the latest deal was $2 billion of loan lent by Blackstone and Blue Owl Capital Corp. to Park Place Technologies LLC on April. Another $335 million loan by Blue Owl was extended to Dresser Utility Solutions LLC at a spread of 550 basis points over one-month SOFR rate.<\/p>\n<p>The universe of loans issued within a year amounted to $49 billion with an average margin of 603 basis points over the benchmark. That compares with 653 basis points for loans issued between one and two years ago. That may reflect stiffer competition with banks in the past year.<\/p>\n<p>Banks are increasingly gathering orders for riskier high-yield bond and leveraged loan sales in private before formally announcing them to the broader market, in an effort to ensure deals find enough demand in difficult markets.<\/p>\n<p>Another risk for private credit funds is a growing trend in payment-in-kind instruments which allow interest payments to be deferred. PIK interest income grew to $192 million in 2023 from $66 million in 2020. Increasing PIK component indicates stress from loan borrowers and poses a threat to overall credit quality.<\/p>\n<h2>Tracking<\/h2>\n<p>Use Bloomberg\u2019s SRCH, WSL, FIW and MODL functions to track and analyze private credit market.<\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:1024px\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"495\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/private-credit2.jpg\" class=\"bbg-single-image__image attachment-large\" alt=\"Direct lending\" title=\"private-credit2\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/private-credit2.jpg 800w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/private-credit2.jpg 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/private-credit2.jpg 768w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/private-credit2.jpg 1017w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><em>For more information on this or other functionality on the Bloomberg Professional Service, click here to request a demo with a Bloomberg sales representative. Existing clients can press &lt;HELP HELP&gt; on their Bloomberg keyboard.<\/em><\/p>\n\n<\/div>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-6a0878ecca5b1]::before {\n\t\t\t\tbackground-color: #eeeeee;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--eeeeee text--black bbg-row--full-bg-bleed\" data-anchor='row-6a0878ecca5b1'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <div\n    class=\"bbg-column\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Recommended for you<\/h2>\n\n<\/div>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 24px !important\"\n    >\n<\/div><script>\n    window.feed = window.feed || {};\n    window.feed['6a0878ecce0bc'] = 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flourishing $1.7 trillion industry.<\/p>\n","protected":false},"author":1679,"featured_media":69048,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"template-article.php","format":"standard","meta":{"_yoast_wpseo_primary_category":"453","footnotes":""},"categories":[457,453,444],"tags":[550,3670,445],"series":[],"class_list":["post-69037","post","type-post","status-publish","format-standard","hentry","category-financial-services","category-markets","category-trading","tag-buy-side","tag-functions-for-the-market","tag-sales-and-trading","type-article"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.11 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Private credit margins squeezed as competition, risky loans rise | Insights | Bloomberg Professional Services<\/title>\n<meta name=\"description\" content=\"Private credit lenders face margin pressure at a time the rivalry from US banks intensifies and Moody\u2019s Ratings warns 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