Who Needs a Bank? Why Direct Lending Is Surging - ABI

What’s direct lending? Old-fashioned bank lending -- without the bank. As tougher regulations reshaped the post-financial crisis landscape, traditional banks have cut back on business lending. That’s created a raft of opportunities: For a growing group of asset managers who are making the loans; for borrowers, including not only mid-sized companies but some big enough to tap the syndicated debt markets if they wanted; and for investors looking for an answer to low-yield woes. For regulators, the question is whether the market can sustain such growth without making a mess.  In the U.S. and Europe, intense competition for deals has led to weaker protections for lenders in many cases. It’s similar to what’s happened in the larger market for broadly syndicated loans. Borrowers that have previously tapped the traditional leveraged loan market for their debt are increasingly pursuing direct loans instead as well. And the growing firepower of private debt funds mean they have been able to write bigger checks for single deals. For example, Ares Capital Europe in February said it provided a 1 billion-pound financing to U.K. telecom services firm Daisy Group in one of the biggest private debt transactions in Europe. Often funds also team up to offer larger financing packages.

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