Loan Note: Remember to cast your vote in our annual awards; how falling inflation may impact rates

Interest rates in the spotlight as 'higher for longer' assumptions challenged. Plus: a call to action from KKR; and TLG Capital backs a revenue-based financing platform in Africa. Here’s today’s brief for our valued subscribers only.

They said it

“Financial headroom remains ample for investment-grade issuers but is reducing for corporates at the lower end of the rating spectrum, where we expect an increase in default rates”

Fitch Ratings’ European Corporate Outlook for 2024

First look


See you on the other side 

It’s the last Loan Note of 2023 and we would like to wish our readers a wonderful and relaxing holiday period. Prior to our regular Loan Notes reappearing in the new year – the first will be on Thursday 4 January – there will still be regular content hitting the site and daily digests, so do keep checking in.

If you haven’t done so already, please remember to vote in the Private Debt Investor annual awards, where more than 50 categories await your verdict.

This time, we’re recognising the remarkable growth of the private debt secondaries market with an award of its own, as well as expanding all our regional and global law firm awards to cover both fund formation and transactions.

Year after year, you’ve supported us in amazing numbers, taking the haul of votes higher each time. We trust this year will be no different! You have until Monday 8 January 2024 (midnight PST) to make your opinions count.

Higher for shorter?

An interesting dynamic around interest rates is developing as the year comes to an end. Many of the predictions for next year – up to this point – have assumed a “higher for longer” interest rate environment. But what if we’re actually heading into a “higher for not much longer” environment?

With inflation having cooled quicker than expected – including in the UK, where the rate soared to a peak of 11 percent last year but tumbled to less than 4 percent in the latest figures – the talk is of possible movement to a rate-cutting agenda, especially in the US.

Speaking to Reuters, Philadelphia Federal Reserve president Patrick Harper said yesterday: “It’s important that we start to move rates down. We don’t have to do it too fast, we’re not going to do it right away, it’s going to take some time.”

While measured, these comments hint at reducing rates being much closer to materialising than many would have expected just months ago. In private debt, rising interest rates bring both good and bad news: increasing the cost of finance, and hence potentially delivering better returns, while putting greater pressure on borrowers and causing stress in existing portfolios.

If you’re looking for something to read around private credit prospects in 2024, you could do a lot worse than browse through the latest Private Markets Monthly (login required) from S&P Global Ratings. It predicts continued growth for the asset class – but at a slower rate – and one of the main reasons for the report’s caution is “uncertainty around the direction of interest rates”, according to Andrew Watt, head of financial services, infrastructure and alternative asset ratings for the Americas.

One thing’s for sure: interest rates will not fade as one of the key talking points in private debt as we head through the early months of next year.

KKR highlights market opportunities

In another of the industry’s customary glances to next year, KKR is seeing reasons for action where others are seeing only the prospect of effectively hoarding cash under the floorboards.

In its latest Insights report entitled Glass Half Full, KKR says it thinks “too many people are locked into the paradigm that the S&P 500 is trading at lofty headline valuations and the US economy is topping out and headed for a hard landing”.

It says many are “sitting idle” and seeing little or no value in the market beyond cash. Suffice to say, KKR does not share that view. On the S&P 500 itself, the firm believes there are some “very compelling” equity stories where companies need capital to grow or reposition themselves, giving rise to public-to-private and carve-out opportunities.

It also has an optimistic stance on liquid credit which “still looks cheap” and infrastructure, where it sees a “secular bull market on a global basis”.

The firm also believes that “ongoing periodic dislocations” and an increase in required refinancings will give rise to more asset-based finance and opportunistic credit deals featuring an “appealing coupon with some equity upside”.

The report was authored by KKR partner Henry McVey with the firm’s global asset allocation and global macro teams.


ABL lending scheme launched in UK

British Business Bank has announced the launch of an asset-based lending variant of the Recovery Loan Scheme, a move which aims to broaden support available for small businesses in the UK to access finance.

The new Recovery Loan Scheme asset-based lending variant joins the existing term loan, revolving credit facility, invoice finance and asset finance variants, which support access to finance for UK businesses as they look to invest and grow.

By 30 September 2023, businesses had drawn more than 20,000 facilities, totalling £4.3 billion ($5.4 billion, €5.0 billion), through the first two iterations of the Recovery Loan Scheme. The third iteration of the Recovery Loan Scheme was launched in August 2022.

African revenue-based financier gets backing  

Global private investment firm, TLG Capital, has announced a debt facility of up to $5 million for Flow 48, an early-stage fintech company claiming to be at the forefront of redefining alternative finance in Africa.

Flow 48’s platform provides borrowers with access to financing based on their revenues and is aimed at increasing African SMEs’ access to capital. The investment is being made through TLG’s Africa Growth Impact Fund.

“Revenue-based financing is an innovative funding solution that has seen great success in the US and Europe. In Africa, where banks are often straightjacketed to lending against landed property, the use case for RBF is even stronger,” said Isaac Marshall, an investment professional at TLG Capital.

Korea hire for Campbell Lutyens

Fund placement and advisory firm Campbell Lutyens has appointed Jintae Kim as a managing director in its Seoul office, focusing on relationships with institutional investors across Korea.

Prior to joining Campbell Lutyens, he spent 10 years at Korea Investment Corporation – the country’s sovereign wealth fund – where he served as global head of the private equity group. Before this, he held numerous other roles within KIC including head of the absolute returns group, head of the CEO’s office, and overseeing the European public equity portfolio from its London office.

Before joining KIC, Kim was a portfolio manager at Midas Asset Management in Seoul and also worked for Goldman Sachs Asset Management in the Korean capital.

LP watch

Institution: Iowa Public Employees’ Retirement System
Headquarters: Des Moines, US
AUM: $41.16 billion
Allocation to private debt: 5.59%

Iowa Public Employees’ Retirement System has proposed making $700 million-worth of commitments to private debt in 2024. The US pension fund is aiming to commit $200 million to direct lending, $200 million to opportunistic strategies, $100 million to real asset credit and $200 million to internal co-investments. The proposal was made during its investment board and benefits advisory committee meeting earlier this month.

IPERS plans to make its commitments in opportunistic private credit to re-up commitments in mezzanine debt and add-on with existing speciality finance mandates. For its direct lending portfolio, IPERS aims to make add-on commitments to existing mandates and look at evaluating previously approved managers. The pension fund intends to make add-on commitments to an existing real estate debt manager and evaluate other approved managers for its real assets credit sub-portfolio.

Iowa Public Employees’ Retirement System has a current allocation of 5.59 percent to private debt – slightly under its target of 5.82 percent.

Platinum subscribers can click here for the investor’s full profile, including key contacts, allocation strategy and fund investments. 

Today’s letter was prepared by Andy Thomson, with John Bakie, Christopher Faille and Robin Blumenthal contributing