The private debt market is on the mend—at least for nontraditional private debt lenders, according to KKR.
Investment bank Evercore‘s research arm said in a summary published Monday that its analysts recently traveled with KKR co-CEO Joe Bae to meetings with investors. Among the highlights, Evercore noted the current economic environment is a “great private credit backdrop” for KKR, driven largely by the fact that banks have become more risk-averse and have pulled back in lending. For KKR and other private credit lenders, this moment marks an opportunity to push debt at competitive rates.
While the private equity firm is prepared for potential credit rating downgrades and increased overall pressure on this market, Evercore said KKR’s management is “ready and nimble” for potential opportunities, armed with $12.5 billion for credit and liquid strategy.
“The financing void has provided KKR and other private debt lenders the opportunity to step in and lend at attractive rates and terms—some calling it the best conditions ever to be a private credit lender,” Evercore analysts wrote in the note to clients.
Over the past few months, the economic environment has proven tricky for private credit funds. In September, Bloomberg reported that direct lending giants including Apollo Global Management, Blackstone, Ares and Owl Rock Capital became more cautious in their financing packages, setting higher yields and demanding more equity per transaction.
Despite this backdrop, Bae expects the credit markets to heal as the majority of the firm’s private debt AUM bears interest at a floating rate and will therefore benefit from higher interest rates, according to Evercore.
PE firms are already finding opportunities in the dry market. For example, Blackstone announced Monday that it will acquire a majority stake in Emerson Electric‘s Climate Technologies business with $4.4 billion in equity and $5.5 billion in debt.
Other highlights from Evercore’s summary include KKR’s strong fundraising momentum and the continued expansion of the firm’s infrastructure business, which has grown from assets of $2 billion in 2011 to $49 billion as of Q2 2022. According to Evercore, KKR expects this platform to grow “multiple times” larger in the next decade.
Featured image by SFIO CRACHO/Shutterstock
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