Industry Q&A – Marc Cooper with Tero Jänne

Q&A – Marc Cooper with Tero Jänne

by CEO Marc S. Cooper

I recently sat down with Tero Jänne, a Partner and Co-Head of Solomon Partners’ Capital Transformation and Debt Restructuring Group. We delved into topics such as the growth of private credit, the impact of liquidity on borrowers, and trends in corporate defaults.

Tero, what are you seeing from the perspective of private credit today?

We are seeing rapid growth in private credit, both in terms of new entrants into the market and new funds being raised by existing platforms.

What’s noteworthy is that private credit isn’t just active; it’s also growing in scale.

Large private credit platforms today are competing directly with traditional banks in ever larger financings. At the same time, we are seeing smaller – and in particular regional banks – reducing their exposure, and private credit stepping in to fill that gap.

What is driving defaults today? Is it primarily due to liquidity concerns?

You’re absolutely right, Marc. Liquidity is the primary driver of debt defaults today, and this holds true broadly across the market, regardless of industry sector. As interest rate hikes have taken hold, even companies that are growing can face liquidity challenges because of the increased burden of servicing their debt.

At the same time, lenders have become more selective in their willingness to provide new financings, especially to borrowers with uncertain cash flow profiles.

It’s clear that liquidity is a critical factor. Now, let’s talk about private credit defaults. Are they on the rise or declining?

Defaults are up across the board. However, it’s important to note that private credit lenders generally have greater flexibility to maneuver around potential defaults.

Since private credit transactions typically involve one or two parties, there’s a greater ability to pursue bilateral negotiation with the borrower to find a solution that avoids a credit default.

This flexibility is a distinct advantage of private credit but also has its limitations and risks, since a private credit lender’s exposure to any single borrower may be much more concentrated than that of a traditional bank.

Tero, it’s evident that private credit is playing an increasingly important role in corporate financings. Thank you for shedding light on these trends.