Amid volatility swings in public markets, both investors and borrowers continue to seek out private credit, according to CVC research.
The alternative asset manager’s second-quarter credit report said that European direct lending is up by 44 per cent and 56 per cent, year on year, on volume and deal count basis respectively.
CVC said that sponsors continue to rely on private credit managers to provide liquidity and execution certainty, even when public markets face challenges.
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The bypassing of banks originally chosen to underwrite high profile transactions illustrates the durability of private credit, it added.
“We have seen similar dynamics during previous bouts of public market volatility and expect this trend to continue as issuers appreciate the stability of access to financing solutions provided by private debt markets,” the research said.
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While European private credit markets are smaller than the US, they may offer a more attractive premium, CVC said. This would be due to their heterogenous nature, which features more complex, structural inefficiencies that translate into enhanced yield opportunities.
The firm also expects private credit’s ability to maintain pricing discipline and execution to be tested if M&A rebounds sharply in the second half of the year. However, ongoing structural supply and demand imbalances suggest the sector’s ongoing relevance.
