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Private credit is expanding, fragmenting, and showing its teeth. This week, we saw banks cozy up to direct lenders, hedge funds profit from creditor-on-creditor warfare, and industry titans like Apollo, Ares, and Carlyle pitch stability in chaos—all while behind the curtain, defaults are ticking higher and liquidity is tightening.

From asset-based lending and mid-cap buyouts to investment-grade and semi-liquid retail funds, this week made one thing clear: Private credit is now everywhere—but not everyone is playing the same game.

Key Market Trends

1. LME Tactics Are Spilling Into Private Credit

Though the recent Tropicana restructuring involved traditional syndicated debt, the structure of that deal—favoring select lenders and subordinating others—reflects a trend directly relevant to private credit.

• Sponsors are using liability management exercises (LMEs) to re-tier creditor rights, even when lenders hold identical “senior” paper.

• These structures are increasingly being adopted in the direct lending world, especially for 2020–2022 vintage loans showing signs of distress.

• Unlike public markets, private credit has no centralized pricing or documentation standards, making LME-style maneuvering easier for sponsors and harder for lenders to block.

Why it matters:
If you're not a top-tier participant—or if you're out of the club—you’re at risk of being structurally subordinated. Private lenders should expect greater legal complexity, lower recoveries, and rising infighting in distressed deals.

2. Banks Recalibrate as Relationship Capital, Not Risk Capital

KKR’s Karo Healthcare financing showed how Wall Street is pivoting to protect its relevance.

• KKR ditched the banks’ €1.1 billion financing proposal for a tighter private credit deal, led by Apollo.

• But instead of walking away empty-handed, banks provided €175 million in revolvers and guarantee lines, and negotiated to receive 40% of the underwriting fee anyway.

Also this week:

• UBS and General Atlantic formed a new JV targeting direct lending in North America and Europe.

• SMBC, Monroe Capital, and MA Financial announced a $1.7B lending venture for U.S. middle-market companies.

The signal:
Banks have accepted their new role—not as lenders of first resort, but as liquidity providers, fee collectors, and syndicate coordinators.

3. The Middle Market Is Becoming Private Credit’s Sweet Spot Again

While the mega-deal headlines keep flowing, the real opportunity in 2025 is quietly migrating back to smaller, defensible transactions.

• Carlyle reported a 150% YoY increase in European middle-market private credit deployments, citing stronger documentation and less competition.

• Fortress is relocating leadership to London and raising a new ABL vehicle focused on Europe and the Middle East, backed by $1B from Mubadala.

• Apera raised €2.9B for its latest mid-cap fund, double its prior vintage.

Why it matters:
2021–2022 large-cap loans are now underperforming and structurally vulnerable, especially in sectors with trade exposure. Firms that scale down and focus on first-lien, asset-backed, or regionally advantaged opportunities are seeing more stable performance—and stickier capital.

4. Credit Partnerships Get Murkier—Just Ask Apollo and Citi

The Apollo–Citi private credit alliance was supposed to be a masterstroke: $25B of coordinated origination over five years. But the Jeppesen deal exposed the cracks.

• Citi had early advisory access, offered Apollo a staple financing opportunity, and still lost the actual financing to a private club led by Thoma Bravo with Apollo, Blackstone, and others.

• Apollo still had to pay Citi a fee for the “early look”—something its competitors didn’t.

The takeaway:
These bank-asset manager partnerships may offer deal flow, but not exclusivity. As originators, banks want a cut of everything. But as lenders, the funds compete fiercely—even with each other.

5. Europe Is Attracting Capital for the Right Reasons

U.S. direct lending is oversaturated. Europe, by contrast, is offering better terms, tighter docs, and less competition.

• Carlyle: “We’re leaning in hard in Europe—it’s more lender-friendly, and deployment is faster.”

• Fortress: “We’re accelerating expansion, hiring senior staff, and building new strategies.”

• Apera, Carlyle, and Oaktree are all adding staff and raising new European-dedicated funds.

Expect Europe to become a larger allocation target for U.S. LPs—especially as BDC volatility erodes confidence in the U.S. middle-market exposure.

Retail Evolution: Morningstar Steps In

Morningstar will begin rating semi-liquid private credit funds in Q3, including interval funds, non-traded REITs, and BDCs.

• The ratings will follow the gold/silver/bronze methodology, based on people, process, and parent—but with more weight on liquidity and stewardship.

• The move is aimed at bringing institutional-style diligence to a fast-growing, opaque product category.

Why it matters:
The launch of Morningstar ratings could be a turning point for product differentiation, capital flow, and LP retention in the $100B+ semi-liquid fund space.

Other Headlines Worth Watching

• Benefit Street is exploring a $2B private credit secondaries sale, to return capital to LPs amid liquidity pressure.

• Man Group is in talks to acquire Bardin Hill, expanding its private credit platform after buying Varagon in 2023.

• Pimco is prepping a new semi-liquid fund for European investors, targeting real asset debt and ABL.

• JPMorgan and Silver Point led a $400M private credit deal for Xactus, pricing at SOFR + 550 bps.

Forward Outlook

1. LME Risk Is Now Embedded in the Playbook

   • Don’t assume you're safe holding “senior secured.” Tiering and subordination are now deal features, not edge cases.

2. Banks Will Continue Moving Downstream

   • Expect more revolver-based partnerships, risk-sharing JVs, and syndicate tail-fee participation.

3. Retail Funds Will Face Their First Credible Scrutiny Test

   • With Morningstar ratings inbound and capital more selective, performance will need to back the pitch.

4. Europe Will Outperform in Vintage Risk Management

   • Legal protections, sponsor discipline, and competition dynamics favor European issuance in 2025.

5. Valuation Drift Is a Delayed Headache, Not a Solved One

   • With public credit widening, expect private loan markdowns—quietly or otherwise—by Q2 earnings season.

Final Takeaway

Private credit isn't collapsing—but it’s definitely splintering. What used to be a monolithic, risk-on trade is now a fragmented, strategy-specific battleground. The next winners will be those who specialize, localize, and get paid to wait.

Everyone else? They're already showing cracks.

Stay sharp with Private Debt News Weekly—your lens on leverage, liquidity, and the recalibration of credit markets.