Private Debt – Private Debt during a downturn

Munich| April 2019

In recent years, investors have become increasingly interested in the private debt asset class. Significant allocations have led to the availability of unprecedented amounts of capital and to new records for the fundraising of private debt funds. As a result of the amply supply of debt for leveraged finance transactions, the leverage ratios of companies have been steadily increasing, whilst credit conditions have been worsening. The situation resembles in many ways the years 2006/2007 and evokes memories of the last financial crisis. Understandably, many investors today are questioning whether they should continue just now to allocate capital to direct lending strategies or whether the current risk in today’s transactions is already too high considering the possibility of a short to mid-term turn in the credit cycle. This paper examines the performance of private debt during the last financial crisis and highlights the market opportunities for investors today.

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