U.S. Leveraged Finance Q4 2024 Update: Outperforming Private Credits Thrive After BSL Transition

Private credit is poised to grow further in 2025 as investor demand for this exposure remains strong. The interplay between direct lending in the upper middle markets and the BSL market has become a hot topic, with rapid spread compression in both lending markets as they compete for assets. Last year, we published a commentary centering on documentation among BSL issuers that were refinanced into private credit. However, 2024 also marked the revival of the U.S. BSL market as it competed for new deals. With funding opportunities widely open in both the BSL and private credit markets, this report puts a spotlight on the reverse flow: private loans refinanced into the syndicated leveraged loan market in recent years. These unrated-to-rated

...- In S&P Global Ratings' sample of private loans recently refinanced into broadly syndicated loans (BSL) in the U.S., institutional lenders selectively financed only high-quality private credit entities. The few that transitioned achieved nearly triple the median size of those in the broader credit estimate (CE) universe, showing robust growth and lowering leverage from initial CE levels. - Companies that transitioned to the BSL market outperformed other small-scale firms in the broader BSL portfolio. Their performance trends are similar to new BSL issuers in the health care, business and consumer services, and technology sectors rated 'B' and 'B-', which serve as our closest comparison group. - As competition for assets increases, loan spreads between the private credit and BSL markets will continue to narrow in the upper-middle-market segment. BSL issuers with lower credit ratings are likely to continue seeking private credit. Despite trends, we believe that overall growth in both markets...

Commentary