Private Markets

The private credit market has grown in breadth and depth, providing a stronger relationship between borrowers and lenders. By offering an alternative avenue for corporate, infrastructure, and financial companies to secure debt funding, private credit now competes with loans and bonds issued to fund large corporate transactions. Against the backdrop of current credit headwinds, our corporate default studies and middle-market credit estimates both show defaults and negative rating transitions at multiyear highs (although tapering)—and it remains to be seen whether this “golden age of private credit” can continue.

Private markets are providing new forms of long-term financing for industrial and infrastructure projects—offering solutions for the energy transition and technological revolution, and making a transformational impact on millions of people. Private markets participants are increasingly investing in project finance due to its tendency to feature higher debt leverage than corporates with the same rating level, and the overall credit resilience and growth prospects of infrastructure. At the same time, project finance issuers are expanding their funding sources into private credit, private equity, and private placements markets.

Alternative investment funds are increasingly turning to credit markets through net asset value facilities, capital call facilities, subscription lines, and bond issuance to diversify and optimize funding, as well as focus on credit investment strategies including private loans. We apply our global ratings framework to various alternative investment funds whose investment strategies span private and public equity, venture capital and private debt, as well as hedge funds and other investment companies that share key characteristics of AIFs.

Investors’ intensifying demand for private credit is fueling growth across different funding structures that invest in these assets—including middle-market collateralized loan obligations, business development companies, interval and private credit funds, separately managed accounts, collateralized fund obligations, and other asset-based finance facilities (such as data centers, music royalties, and beyond). While other credit asset classes have experienced outflows alongside the rapid escalation in interest rates, investors have increased their private credit allocations—reshuffling their exposures due in part to the attractiveness of these primarily floating-rate assets in an environment of still-high rates.