Private Credit History

In Late 90s and Early 2000s:

Private credit emerged as a necessary alternative when the public markets and regulatory frameworks couldn't adequately support financing needs, particularly for middle-market companies that are often underserved by traditional financial institutions.

This was evident as far back as the late 90s and early 2000s, before the financial crisis, when there was a noticeable gap in funding options for these smaller enterprises.

Why Private Credit Was Needed:

Private credit provided a solution to these accessibility issues by offering a form of financing called mezzanine finance, which became popular in the late 90s and early 2000s. Mezzanine finance helped fill the gap left by the public markets by providing more tailored, flexible, and accessible financial solutions for middle-market firms.

By doing so, it allowed private equity firms to complete deals that otherwise might not have been possible through traditional financing routes. Thus, private credit became an essential tool for facilitating growth and transactions in sectors of the market inadequately served by public financial instruments and regulatory mechanisms.

Between 2000 and 2007:

Between 2000 and 2007, private credit had expanded to approximately $200-$250 billion, primarily in the form of junior instruments like mezzanine finance.

Post-2008 Financial Crisis:

After 2007, the landscape of private credit underwent significant transformations, mainly due to the global financial crisis and subsequent regulatory changes, including the Dodd-Frank Act. These regulations restricted certain banking activities and the operation of trading desks, leading to a reduction in their size.

As a result, there was a gap in the financing market that needed to be filled, prompting the expansion of private credit markets.

Post-2007, deals that would typically be managed through syndicated loans or bonds started shifting towards the private credit market. This shift was due to the flexibility and tailored structuring available in private credit, accommodating larger and more complex financing needs.

Recent Developments:

Recent disruptions, like the collapses of Silicon Valley Bank and Signature Bank in 2022, caused further shifts in the market. These events led to a surge in "hung loans" (loans announced but not sold) on Wall Street, compelling the private credit market to expand once more to accommodate larger deals, often in the billions, especially for private equity sponsors looking for certainty in funding. This indicates the robust adaptability and increasing importance of private credit in the financial landscape.

The market size for private credit has grown approximately fivefold, from $250 billion in 2007 to nearly $1.5 trillion.