Private credit promised investors the returns of equity with the protection of senior secured debt, turning a niche market into a multi-trillion-dollar industry. Now, lenders to private credit are discovering that the protection may be weaker and the returns smaller than they expected.
The Banker’s analysis of private loans made by 37 lenders, based on Bloomberg data, shows that the median spread earned by lenders has fallen by nearly 150 basis points from peak to trough, stripping away roughly one quarter of their premium. At several major firms, spreads have fallen by 200bp or more. It is some of the clearest firm-by-firm evidence yet that private credit’s long boom has entered a correction.