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Private Equity Firms Lend Less as Demand Cools

Private equity firms that have become lenders to risky leveraged buyouts are doing less business just as higher interest rates have made that practice more lucrative.

Blue Owl logo
Blue Owl logo

Decrease in Business

Buyout firms with direct lending businesses, such as Blue Owl Capital Inc, Blackstone Inc, and Apollo Global Management Inc, disbursed a total of $151.3 billion in 2022 for middle-market deals, a decrease of 23% from the previous year.

Reasons for Decrease

Seven private credit executives attributed the drop to fewer companies seeking financing, more expensive financing, and lenders becoming more risk-averse due to concerns about a potential economic slowdown. Limited bank financing for leveraged buyouts is also a factor.

Impact on Leveraged Buyouts

The total value of leveraged buyouts in the US fell 32% YoY to $345.6 billion in 2022, down from $507.6 billion in the previous year.

Blackstone logo
Blackstone logo

Rise in Cost of Borrowing

The cost of borrowing from private equity firms has recently soared due to higher interest rates, dampening loan demand. Some borrowers are opting to delay refinancing and repaying their outstanding loans.

Risk-Averse Lenders

Private equity firms have become more risk-averse when it comes to lending as the economic slowdown and sticky price inflation erode the creditworthiness of some borrowers.

Drop in Fundraising

The drop in direct lending business has spilled over into fundraising for vehicles that provide the pools of capital for the loans. US private debt funds raised $216.2 billion in 2022, down 6% from the year before.

Major Deals are Still Happening

Major deals using private equity firms as lenders are still getting done as banks have continued their retrenchment from risky debt.