Private Credit’s Default Recovery Rates Are Worse Than Its Biggest Rival
New data shows direct loans are worth less after a default than syndicated loans.
Direct lenders tend to be optimistic about their company loans in the months running up to a default.
Photographer: Matt Cardy/Getty Images EuropeThe dangers of private credit firms overvaluing their own assets has become one of the booming $1.7 trillion industry’s most contentious topics in recent weeks. New data on how much money they expect to get back from defaulting borrowers will only add fuel to that fire.
As the private credit industry has battled with investment bankers over the lucrative business of lending companies money, one of its biggest selling points has been that its tougher loan protections and one-to-one relations with borrowers would give it extra protection when those companies hit trouble. New analysis by KBRA Direct Lending Deals casts doubt on those assumptions.