Market participants often ask why large corporate borrowers would choose a private solution for financing rather than the public markets, especially in the current environment. In this paper, we answer that question and explore the lasting power of private credit, the landscape of the debt markets, potential opportunities, and pitfalls to avoid.
Key Takeaways
- We continue to see increasing demand for large-scale direct lending, highlighting the enduring nature of private credit. The opportunity to lend to larger businesses on a first-lien, senior-secured basis at attractive yields continues to grow as corporate borrowers seek bespoke solutions and diverse funding sources.
- Despite the Federal Reserve’s shift to easing monetary policy, we expect interest rates to stay higher for longer on a relative basis. An environment of sustained higher interest rates can enhance opportunities in direct lending, which are often floating rate instruments. Additionally, private credit continues to generate incremental spread over public credit, and we expect that to remain the case for the foreseeable future.
- We believe that the opportunity to provide private capital to borrowers may be enhanced as dealmaking activity picks up further in light of potentially less-stringent regulatory policies from the incoming US administration.
- Even as public debt markets have seen a resurgence, we believe both the public and private debt markets will continue to grow and coexist. We do not see it as an either/or opportunity. Rather, the key benefits private credit can offer—e.g., customization, speed, and certainty of execution—have become an integral part of the menu of credit solutions available to large borrowers.
- In our view, private credit is not inherently more risky compared with public debt markets. Private transactions are generally negotiated on a bilateral basis and allow lenders to secure stronger legal and contractual protections.
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The information herein is provided for educational purposes only and should not be construed as financial or investment advice, nor should any information in this document be relied on when making an investment decision. Opinions and views expressed reflect the current opinions and views of the authors and Apollo Analysts as of the date hereof and are subject to change. Please see the end of this document for important disclosure information.
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The views and opinions expressed in this presentation are the views and opinions of the author(s) of the White Paper. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Further, Apollo and its affiliates may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this presentation. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. Target allocations contained herein are subject to change. There is no assurance that the target allocations will be achieved, and actual allocations may be significantly different than that shown here. This presentation does not constitute an offer of any service or product of Apollo. It is not an invitation by or on behalf of Apollo to any person to buy or sell any security or to adopt any investment strategy, and shall not form the basis of, nor may it accompany nor form part of, any right or contract to buy or sell any security or to adopt any investment strategy. Nothing herein should be taken as investment advice or a recommendation to enter into any transaction.
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During an interview with Bloomberg’s Dani Burger, Apollo Co-President Scott Kleinman covered a wide range of topics including our commitment to generating excess return for investors.
