Feb 14, 2024 - Business

Views from the Axios Pro private credit roundtable

A man speaking with his hands up at a table with windows in the background and a green sign that says Axios BFD on an easel

The Axios Pro private credit roundtable held in Miami. Photo credit: Ledd Villamarzo, EDIN STUDIOS

A group of senior investors, advisers, and founders gathered in Miami on Tuesday to discuss the growth of private credit. The "Expert Voices" roundtable was part of the Axios BFD conference held in the city.

What they're saying: The hour-long discussion featured a range of views and insights on the surge of private credit offerings, how companies and clients are utilizing the products, and where banks and non-bank lenders go from here in the current macro environment.

  • Below is a snapshot of views shared by speakers at the roundtable.

Competition is heating up across bank and non-bank lenders.

  • "I think the big competition you've seen today is really that private credit has grown significantly," said David Rosenblum, fund partner at I Squared Capital. "You still have enormous amounts of demand from the middle market. So I think what happens over time…is you're still going to always have this competition between syndication, syndicate execution and private credit execution. I think we're seeing exactly that right now."
  • Rosenblum later added that middle market private credit will compete less with syndication execution.

The acceptance of private credit offerings is widening.

  • "We're helping our corporate clients understand the full options available to them, and that these options may be different from what it used to be 10 years ago when it was somewhat limited to syndicated capital or syndicated debt," said Ian Schuman, a partner at Latham & Watkins.
  • "Private credit is not necessarily bespoke to just distress situations. A lot of companies that we represent are on the IPO launch pad waiting for more favorable conditions. They don't necessarily want to do a super dilutive process. They'd rather have a strategic partner involved."
  • "There are some companies that would like to capitalize. They don't love their stock price right now. They'd rather turn to a pipe transaction or a preferred transaction and keep executing on the model, and have just one party to deal with, as opposed to competing parties within the same piece of paper in a syndicated loan," Schuman added.

A range of businesses are exploring private credit options.

  • "So think about a company that has made it through the FDA, they start to execute. They have $10-15-25 million dollars in revenue, they need money to invest in sales, manufacturing, marketing distribution. Why would you go raise an expensive crossover round ahead of a sale to a strategic or at an IPO, when you can raise what looks on a relative basis, like relatively cheap, structured debt?" said Kennedy Lewis president Doug Logigian.
  • "And then you execute for the next year, year and a half, maybe raise more equity," Logigian added.

Certain types of debt remain risky.

  • "[Y]ou have a $2 billion valuation and we're lending $20 million in venture debt. It's a really low loan-to-value ratio, but it's very binary the outcomes of a lot of those businesses. That's been the challenge is when there's not profitability or assets to back up the debt," said Brian Harwitt, partner at CoVenture.
  • "With venture debt, I've seen companies go out of business for their founders being greedy. ... If you're not [profitable], it's a very risky thing not just for the lender but for the founder," said Carlos Domingo, co-founder and CEO of Securitize.
  • "As a startup founder and not being profitable, I wouldn't take venture debt. With equity financing, you won't go out of business. You might have to raise more but the company stays there and you have more time to make it work," Domingo added.

Editor's note: This article was updated to include additional comments from Rosenblum.

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