Exploring the Growth and Impact of Non-Bank Financial Intermediaries
The appeal of private credit (or private debt) issued to corporations is becoming increasingly significant. With traditional bank lending tightening, particularly for smaller firms, private credit is providing an important lifeline for many businesses.
According to PYMNTS Intelligence, only 47% of small and medium-sized businesses (SMBs) with annual revenues under $10 million have access to business or personal financing. This leaves nearly half without the necessary capital, and 60% of SMBs are denied the funding they need.
A recent report from the Federal Reserve Bank of New York highlights the rise of non-bank financial intermediaries (NBFIs), whose asset share grew from 44% in 2012 to 49% in 2021. Despite their growth, NBFIs still heavily depend on banks for funding and liquidity, with an estimated $1.5 trillion in bank credit line commitments.
The Fed's report, “Banks and Nonbanks Are Not Separate, but Interwoven,” suggests that the activities and risks of banks and NBFIs are deeply interconnected. With stricter capital requirements, banks are shifting corporate and real estate loans to nonbanks, indirectly exposing themselves through senior loans and collateralized loans to private credit companies and mortgage real estate investment trusts.
How will the evolving landscape of private credit impact the financial ecosystem in the coming years? Are we witnessing a fundamental shift in how businesses secure the funding they need?
More news and updates below.
- Goldman Sachs aims to double its lending over the next five years to ultra-wealthy private bank clients with account sizes exceeding $10 million, as it gathers more deposits to supercharge lending, the bank's private banking chief told Reuters.
- The rise of private credit is sparking a heated debate on Wall Street. JPMorgan Chase CEO Jamie Dimon warns that increased lending by private equity firms and hedge funds could allow unmonitored risks, potentially leading to significant losses for retail investors. Conversely, executives from major money managers argue that moving funds from banks to the investment market improves the financial system's safety and resilience. Private credit has grown to $1.67 trillion globally, with $1 trillion in North America, and has shown strong recent returns despite concerns about its impact during financial downturns. Critics highlight that private lenders face fewer regulations than banks, but increased regulatory scrutiny is likely. The relationship between banks and private lenders remains complex, as banks also lend to and provide services for private lenders.
- Union Bancaire Privée (UBP) emphasizes the resilience and diversity of the private debt market, which gained prominence after the global financial crisis due to reduced bank lending and favorable monetary policies. Despite normalized interest rates, private debt is expected to continue growing due to ongoing non-bank financing needs. While direct lending has been a key segment, UBP anticipates a shift towards residential real estate and asset-backed financing for better returns. They recommend that investors diversify within private debt and choose strategies less dependent on falling interest rates and lower leverage as the market stabilizes.
- KKR’s credit team reports significant activity in asset-based finance and capital solutions, spurred by increased banking regulations and the sale of risk-weighted assets. Investors are leaning towards customized, multi-asset portfolios and consolidating private credit allocations with fewer managers. Demand for capital solutions is high due to wide bid-ask spreads in mergers and acquisitions, while junior debt remains underfunded. KKR emphasizes the importance of partnering with banks for synthetic risk transfers and notes a substantial rise in CLO activity, with $105.7 billion in new issuances by May. The firm advises prioritizing stable opportunities, forecasting one interest rate cut in December, and manages approximately $230 billion in total credit assets.
- A recent survey conducted by CSC among 400 senior executives in private markets indicates a positive outlook on deal-making conditions. Approximately 29% of respondents believe conditions are already improving or will do so within the next year, while nearly half (46%) foresee improvements within the next two to five years. The study underscores the pivotal role of special purpose vehicles (SPVs) in enhancing these opportunities, particularly in the private debt sector, where 67% anticipate market improvements. As SPV management grows more intricate due to regulatory complexities, there is a rising trend towards outsourcing to specialized administrators equipped with advanced technology platforms. The demand for centralized portals for comprehensive SPV oversight underscores the increasing emphasis on technological efficiency in managing private market investments.
Recent Deals and announcements
- MidOcean Partners has closed its third opportunistic credit fund, MidOcean Tactical Credit Fund III, securing $765 million from global institutional investors. The fund targets mid-sized direct lending and distressed investments, utilizing MidOcean’s expertise and resources. Chief Investment Officer Dana Carey highlighted the strong demand and confidence in achieving attractive returns. Recently, MidOcean has issued and refinanced multiple CLOs, partnered with Kroger on emerging CPG brands, and launched a Structured Capital Solutions strategy.
- White Oak Commercial Finance (WOCF) secured a $1.1 billion credit facility, led by Wells Fargo Bank and involving 11 other banks, to enhance its asset-based lending (ABL) capabilities. Additionally, WOCF merged with White Oak ABL, creating a unified platform to better serve the expanding market and support middle-market companies with comprehensive capital solutions. This facility also broadens White Oak’s international lending capabilities, aiding borrowers with operations in the U.S., Canada, the UK, Australia, Europe, Asia, and Mexico.
- Ares Management has entered the equipment finance sector with the launch of Ansley Park Capital, leveraging its deep asset-based credit experience and seizing opportunities amidst recent shifts in the banking sector. Ansley Park specializes in large-ticket equipment finance, benefiting from Ares' substantial capital and the specialized knowledge of its team formerly with BciCapital. This collaboration highlights shared cultural values and anticipates operational synergies. Positioned within a changing economic environment, Ansley Park aims to address gaps left by shrinking bank lending, offering customized financing solutions to meet varied client requirements and influencing the future direction of equipment finance.
- On June 17, 2024, Nabors Industries amended and restated its secured credit facility, increasing it to $475 million, which includes $350 million for revolving credit and $125 million for letters of credit, with a new maturity date of June 17, 2029. This replaces the previous $350 million facility that was set to mature in January 2026. Key changes include a $200 million uncommitted accordion feature and an increase in the letter of credit facility from $100 million to $125 million. The credit facility involves Citibank, Wells Fargo, Goldman Sachs, HSBC, and Morgan Stanley. It maintains an interest coverage ratio of 2.75:1.00 and a minimum guarantor value of 90%. CFO William Restrepo highlighted that the new facility improves liquidity, provides flexibility for addressing working capital needs, and supports international market growth, particularly for contracts requiring bid or performance bonds.
Interested in discussing private credit opportunities in more detail? Contact me at tbarnes@axisgroupventures.com.
You can learn more about Axis Group Ventures at our website here.
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