The heightened risk of recession and the hit to corporate earnings from US president Donald Trump’s tariff policy might have been a good time for the nascent private credit market to temporarily up shop.
But direct lenders are proving to be unexpectedly resilient in the face of market chaos.
Unlike lending banks, private credit providers do not have a relationship with borrowers that they need to nurture.
They have no interest in ancillary business such as providing cash management services or running a bond mandate for a company.
This means it has no reason to tell a company it will be there with it through thick and thin.
Investors at private lending firms often say they get to know the companies that they lend to inside out and back to front; they often trumpet their reliability and buy-in for the companies they finance.
But until there is a crisis, it is hard to know how much of that is just talk.
The last few weeks have provided the first big test for direct lending since the market has boomed following the Covid era. And private credit appears to have shown that it can get deals done even through the bad times.
Since April 2 when Trump first announced a raft of tariffs, direct lenders like KKR, Apollo and Blackstone have come to the fore with financing deals totalling around $5.3bn for Karo Healthcare, Boeing’s sale of its Jeppesen unit to Thoma Bravo and EQT.
Loans bankers, while reticent to say their banks are doing less lending, acknowledge widening spreads and that private lenders are gaining a foothold in their territory.
Loans bankers for time immemorial have said how important M&A is to their business, how it is the lifeblood of the market, how it can make or break their year.
There isn't much big ticket M&A about so the fact that the $10.55bn Jeppesen deal has been at least partially financed through direct lending, not the bank market, is significant.
Loan syndicates that have relied upon their ability to provide cheap capital to longstanding clients through thick and thin should be on their guard.