Private credit’s role in mid-market opportunities

The current dynamics of upper middle-market corporate credit present both challenges and opportunities. In this article, we explore how the convergence of private credit and public markets is shaping investment strategies. Sharing their expertise are Kevin Lawi, Head of Private Credit, and Christopher Kempton, Global Head of Client Portfolio Management at the Credit Investments Group.

Understanding the current credit market landscape

KL: Right now, we’re in a borrower-friendly market, much like post-COVID in 2021 where spreads are relatively tighter, and terms are competitive. That being said, there are still plenty of good transactions to be made. The key is flexibility and the ability to adapt to these market conditions.

CK: Private credit’s strength lies in its flexibility. Even though the headline figure for private credit assets is large, the portion that directly competes with the loan and bond markets is more focused, helping us to identify attractive opportunities. We continue to see solid yields, even in a tightening spread environment.

Convergence between private and public markets

KL: As private and public markets converge, we’re seeing more value in being able to operate across different types of credit. For example, we recently worked with a business that transitioned from private credit to high-yield bonds as it grew.

CK: Our ability to pivot between syndicated loans, high yield bonds, and direct lending gives us a unique edge. This convergence allows us to serve our clients better by offering a wider range of solutions, regardless of how the market evolves.

Opportunities and challenges in the upper mid-market

KL: We’re optimistic about the next few years. As the M&A market picks up, we expect deal activity to increase, which will help balance supply and demand. While we are seeing some increase in default rates, the yields and return opportunities remain attractive, especially with careful credit selection.

CK: The key is managing risk while capitalizing on these opportunities. The upper middle-market offers access to different forms of capital, which helps companies navigate challenging times and positions us to take advantage of market’s bifurcation.

Final thoughts

KL: In my personal view, private credit continues to be a resilient and adaptable asset class, well-positioned to navigate various market conditions.

CK: That flexibility, combined with deep market knowledge, aims to support the success of our investors.

For more insights on how Private Credit can align with your investment strategies, visit the Alternative Credit hub

Kevin Lawi:

Flexibility and the ability to adapt to market conditions are key to finding success in the current borrower-friendly environment.

Christopher Kempton:

Our ability to pivot between syndicated loans, high-yield bonds, and direct lending gives us a potential edge in navigating the convergence of private and public markets.