Trying to gain a deeper understanding of the decision factors issuers and banks make when deciding whether or not do pursue BSL market or do a direct deal. Does it mainly come down to cost, flexibility, and ease of execution? My understanding is that private credit guarantees greater certainty though is often more expensive. I feel like we're reading so much about why private credit markets are booming, though would be curious to hear rationale as to the advantages of sticking with BSL market.
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Based on the most helpful WSO content, here are the key factors that influence a company's decision to pursue broadly syndicated loans (BSL) versus private credit:
Factors Influencing the Decision:
Cost:
Flexibility:
Ease of Execution:
Certainty of Execution:
Borrower Size and Risk:
Market Conditions:
Summary:
This decision-making process is influenced by the specific needs and circumstances of the borrower, as well as the current market conditions.
Sources: What are the different types of Credit?, Overview of Leveraged Finance, Overview of Leveraged Finance, Private Credit / Direct Lending Comp, https://www.wallstreetoasis.com/forum/private-equity/qa-non-target-top-bucket-ssg-private-creditdirect-lending?customgpt=1
His stats say otherwise...
I will oversimplify but:
1. Execution: syndicated deals typically have higher creditworthiness and other factors so not all companies may be able to predictably rely on syndicated markets for smoothest execution and best pricing. Will also add if they are not an existing known issuer the bar is higher to get a deal done.
2. Size: typically (not always) direct deals are smaller than syndicated deals. PC has always existed and financed deals that don't hit current market deal size requirements/preferences. E.g. Maybe a $400mm TLB won't clear the market, but a unitranche solution is available (for a higher price).
3. Credit doc optionality: this one always flies under the radar but do you anticipate wanting to make any changes to your credit docs in the future? E.g a dividend recap, refinancing, upsized revolver. Anything the company wants to do from a financing perspective needs to conform to existing docs. Syndicated markets allow clients to negotiate changes with the lead bank who pushes to the syndicate. With direct deals, it's common to have to negotiate with each private lender individually.
Interesting you mention BSL's being easier to amend agreements. From what I've seen, PC (usually 1-lender facilities) has been much more flexible with covenant waivers and patient as long as payments continue to be made.
OP, if you haven't already, I highly recommend reading Pitchbook's Leveraged Loan Primer. That was my bible when first learning about the industry and I still refer back to it on occasion when we get a facility type that I haven't experienced before.
Yea poster above is flat out wrong and you can tell he is not in LevFin
Makes sense for single-lender facilities. I'm sure there are other cases where PC will be easier to negotiate as well.
Your credit doc take is odd. Syndicated will flex to market so not much “negotiating” of terms for the lead bank / it’s just pegged off a recent precedent. Direct deals is more dependent on size. Sure they will have to negotiate with individual direct lenders on club deals but those larger transactions that have a sizeable lender group gets to be eerily familiar to the BSL market (you either want the yield or not and they can replace you).
You are talking about price/rate. I am talking about covenants/financing decisions.
Ultimately some companies aren’t “marketable” enough to hit the bsl market - think about business model, business size, quantum, leverage, sponsor profile, the list goes on. That being said there have been multiple new issues where privately financed companies have gone out to the bsl market to refinance their pc loans with TLBs. Triton have done this with multiple assets, Oakley did one earlier this year too. I think we’ll continue to see more - these have all been best efforts deals with robust order books. The appetite is coming back and that’s another key factor - a lot of deals that were financed when loan markets were shut can be refid today with considerably better economics…
This is the most obvious answer ever. They are completely different asset classes. Broadly syndicated loans are for high-credit, large companies with relatively low costs of borrowing. Private credit fills the gap on those that don't meat the aforementioned criteria, but for a higher interest rate.
The caveat, of course, is I mean meat and not meet.
This may have been true 10 years ago but not anymore. Especially in the sponsor-backed world where private credit financing for a new money LBO can be just as competitive as BSL. I see plenty of deals where the sponsors are engaging both banks and private lenders for financing and it's often a 50/50 decision.
Sponsor backed post LBO debt is not credit-worthy lol I'm talking about underwriting bonds for blue chip companies versus holding unrated LBO junk debt.
Ya I'm gonna folow up here and call bullshit on your title. No way you're a VP with the limited brainpower you have. Bro underwriting 10x levered sponsor-backed companies in private markets is not at all like underwriting publicly offered bonds for Google and Microsoft, totally separate asset classes filled by different capital providers.
You my friend, have dick for brains. Maybe the next time Google or Facebook or Nvidia needs money they can hit up Butt-Licker Capital Funders LLC for a sick SBIC eligible mezz piece at S + 1000 and 2.0x minimum MOIC instead of issuing bonds.
“Broadly syndicated loans are for high-credit, large companies with relatively low costs of borrowing”… hmm, I don’t think you know what you’re talking about. I recommend reading into “leveraged loans”. Pretty big slice of the BSL market, and not exactly geared to high credit businesses. Also, why are you so angry, it’s weird
What would I know, I only work for the largest credit manager in the world. You don't know Jack Dick, intern.
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