Opportunity From Crisis: How Private Credit Stands to Benefit From Recent Tumult in the Banking System

Executive summary:

  • In the aftermath of the banking crisis, many regional banks are likely to face tighter lending standards and a challenging environment in which to raise capital.
  • Banks will likely present even less competition for non-bank lenders in the foreseeable future.
  • We anticipate that this situation will result in more opportunities for private credit.

The terms private credit and private debt are often used interchangeably to describe direct origination credit strategies. But, the business is also known by another name: non-bank lending.

No doubt, you're probably aware that actual banks on both sides of the Atlantic have recently been in varying states of panic. While the extent of the fallout remains to be seen in publicly traded markets, the combination of three of the top four largest bank collapses ever in the U.S. and the fall of Credit Suisse is almost certain to have some lasting impacts on the market beyond just the next few weeks. One of those impacts will likely be a retrenchment in bank lending. In the spirit of a never-let-a-good-crisis-go-to-waste framework, we believe that is very likely to open up a lasting pocket of opportunity for non-bank lenders to take market share while still delivering attractive risk-adjusted returns to end investors.