The development of private capital and its influence on debt markets

Caroline Philips
Slaughter and May, London

Caroline.Phillips@SlaughterandMay.com

Introduction

On 29 January 2025, officers from the IBA Banking and Financial Law Committee convened remotely to debate the development of private capital and its influence on debt markets in their individual countries. 

London and New York

The discussion started with a focus on the markets in London and New York. In regard to both markets, there has been significant growth in private credit since the financial crisis in 2008, which has accelerated in recent years, and it is anticipated that private credit will continue to rise. Participants in the discussion noted that while private credit was often thought to be focused on the provision of non-bank lending to the mid-market ($25m to $75m earnings before interest, taxes, depreciation and amortisation or EBITDA), private credit is becoming part of the debt picture across the spectrum, from high-net-worth individuals and small businesses to larger cap companies, and the expectation is that as the private credit market matures, so will its size, sophistication and scale. 

The discussion then turned to the impact of increased competition for private credit funds in 2024 and early 2025, with debt capital markets becoming more open than in previous years and banks returning to the leveraged buyout (LBO) market. This increased competition was thought to be favourable for borrowers, with spreads tightening as private credit competed with other sources of funding for the first time, as well as the relaxation of terms (eg, the removal of maintenance financial covenants). 

Increased competition has also had an impact on deal structures, with dual-track processes becoming more typical, as well as hybrid structures (where banks have taken the senior tranche and private credit the junior tranche). Hybrid structures and the interaction between banks and private credit were also regarded as positive developments, as they have enabled banks with capital constraints to exit the riskier parts of the capital structure and have enabled private creditor investors to invest in a broader range of asset classes (not just real estate and infrastructure).

The discussion also briefly touched on the role of private credit funding in the mergers and acquisitions (M&A) process, with the consensus being that debt funded by private credit is faster to execute, more tailored and has greater flexibility than bank debt (but the timetable for deals has to bear in mind that there needs to be a longer window in which to receive the funding (often ten days or more)).

Other European jurisdictions

It was noted that private credit, while growing, is a more nascent market in other European jurisdictions (such as France, Italy and Poland), where bank funding remains predominant. The slower growth of private credit was in part attributed to the good availability of bank debt, but also to regulatory and legal constraints that exist in some jurisdictions and that need to be taken into account during structuring (for example, in France, where there are restrictions on private credit funding loans). However, in each of these jurisdictions it is still becoming a more important part of the debt conversation. 

India

The Indian members of the Committee noted that the story in India is not too different from London and New York, namely that private credit is growing and is here to stay, in particular because of the current regulatory arbitrage, with many banks not willing or able to fund areas of the market that private credit providers are funding. The focus in the country is on infrastructure and real estate, but private credit is also now diversifying into other sectors, for eg, e-commerce and healthcare. 

Asia

While private credit is a growing part of the conversation in other parts of Asia, the expectation of Committee members is that bank lending will continue to dominate. For example, in Singapore, although there is a strong private credit presence, it is not expected to enjoy the rapid ascendency as seen elsewhere. The development of the private credit market in Asia faces ongoing challenges due to the fragmented nature of the corporate fundraising landscape. For instance, while the lender may be located in a key financial centre like Singapore, the borrower and its operations may be distributed across various countries in Asia. This complexity makes entry into the Asian market less straightforward compared to other regions, as the region lacks homogeneity. Consequently, differing tax, regulatory and legal requirements have to be navigated, making it more difficult for private credit funds to enter the markets, unlike the situation faced by larger banks that can more easily conduct business in the area.

Latin America

The conversation then moved onto Latin America, where private credit is much more nascent. In many jurisdictions, such as Peru, banks are protected by tax rules, for eg, the imposition of value-added tax (VAT) on lending by non-financial institutions, and, thus, although there is interest in private credit, the additional structuring required (private placements or capital market issuance) acts as a disincentive. It is noted that in Mexico, where the same tax incentives do not apply, there has been an increase in the use of private credit, particularly in terms of microfinance and in a Fintech context. There was a brief discussion on the challenge that exchange control rule restrictions pose in certain jurisdictions in the region, such as Argentina.

South Africa

Finally, the conversation concluded with a discussion on the rise of private credit in South Africa, where it plays an increasingly important role in debt funding across a wide range of sectors. There has been significant private credit investment in South Africa in regard to infrastructure. As with other jurisdictions, exchange control restrictions pose a currency risk that investors need to accept, and this acts as an inhibitor to international players adopting a direct role in such funding. The expectation in South Africa is that private credit will continue to grow.

Private credit will be discussed further during panel sessions at both the Asia-based International Financial Law Conference in September 2025 and at the IBA Annual Conference in Toronto on 6 November 2025.