Companies with large amounts of debt approaching maturity are tapping the private credit industry for financing that may not be available through public markets. The latest example is PetVet, a veterinary hospital operator owned by KKR, which is looking to refinance more than $3 billion in loans. Other recent examples of companies include Hyland Software, Finastra, Cole Haan, and Tecomet which have raised a cumulative amount of $10 billion in the past few months. 

With private credit, companies are able to bypass traditional banks and access billions in loans. This is being facilitated by a surge of inflows into the asset class which is leading to funding for takeovers and to refinance debt. 

Another factor supporting the growth of private credit has been weakness in the syndicated loan market, where banks arrange financing and then sell the loans to other investors. Given that over the next 3 years, $350 billion of leveraged loans are set to mature, private credit will continue to be a necessary intermediary especially for companies with higher debt loads.   

Typically, private credit investors earn between 5 and 7% above benchmark rates which comes in at between 10.5% and 12.5%. In contrast, the average yield on B rated corporate bonds is 9.2%. 

Finsum: Private credit is playing an increasingly important role when it comes to providing financing for companies. Here are some of the major factors behind this shift.