Broadly syndicated loans remain “fundamentally different” to private credit and recent concerns in the private credit market have highlighted why they should not be confused with one another, according to a new report by Janus Henderson Investors.
Denis Struc, portfolio manager, and Kareena Moledina, client portfolio manager lead, said that while both private credit and broadly syndicated loans finance leveraged companies, they remain distinct, and this is important to remember – especially in the context of collateralised loan obligations (CLOs).
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“In our view, recent private credit market developments have reinforced rather than weakened the case for making this distinction clear,” they said.
“Broadly syndicated loans may finance privately-owned companies, but in how they are structured or priced, and how investors access liquidity through CLOs, they remain fundamentally different from private credit.”
They said that the recent developments in the market have brought liquidity and valuation into sharper focus, and this has made it “important to distinguish private credit from broadly syndicated loans, rather than treating the two as interchangeable forms of leveraged finance”.
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“Both markets finance below-investment-grade companies, and both often fund sponsor-owned businesses, but they differ materially in borrower profile, market structure, valuation framework, funding and liquidity mechanisms,” they said.
“That distinction is particularly important in the context of CLOs. These are built on broadly syndicated loans and funded through term liabilities, where a CLO issues tranches of debt and equity with defined maturities.
“This means the investor experience is fundamentally different from that of some private credit vehicles that offer periodic liquidity against inherently less liquid underlying assets.”
