Citigroup is looking to obtain credit ratings for senior loans it makes to private credit funds, in order to attract more investors.
Banks are providing an increasing amount of financing to direct lending funds to tap into the private credit boom while keeping down their regulatory cost of capital.
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“Private credit markets are growing at eight to 10 per cent a year, but bank balance sheets clearly aren’t growing at that rate,” Mickey Bhatia, Citi’s head of spread products, told International Financing Review. “Banks are now looking to create more of a syndicated market out of their senior loan book, but you need to get ratings in order to maximise the distribution of these loans.”
The move could help Citigroup to attract a wider array of investors such as insurance companies, which typically require ratings before agreeing to allocate their funds.
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“We believe most of the senior lending market [to private credit funds] will become a rated market,” Bhatia said. “It won’t be a full-scale public market like Triple A CLOs. But you’ll see more of these deals getting syndicated to clients.”
There is increasing competition in the upper middle market between private credit funds and banks, due to the recovery of the broadly syndicated loan market.
Recent research from Deloitte found that the number of private debt deals in Europe declined in the first quarter, while the broadly syndicated loan market saw a sharp increase in activity.
