The Big Banks Want Their Lucrative Lending Back

(Bloomberg) — Editor’s Note: Welcome to Credit Weekly, where Bloomberg’s global team of reporters will catch you up on the hottest stories of the past week while also offering you a peek into what to expect in credit markets for the days ahead.

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One of the biggest shifts within debt markets during the past decade has been the rise of private credit. That’s where alternative asset managers like Blackstone, Ares and Apollo make loans directly to companies — usually the small or less-creditworthy ones — after traditional banks pulled back amid pressure to curb their riskier activities.

Private credit is now a $1.4 trillion industry. It has funded acquisitions of companies like Stamps.com and big-data firm Information Resources Inc. Now many of those banks want back in the action.

The latest is JPMorgan Chase & Co. As Bloomberg’s Silas Brown and Will Louch wrote this past week, the New York-based bank has set aside at least $10 billion to back its move into private credit. And it’s prepared to put up billions of dollars more depending on the opportunities it finds.

JPMorgan certainly isn’t the first big bank seeking to reclaim the juicy fees and big yields that come with lending in this space, and it likely won’t be the last.

Preqin, which tracks alternative assets, expects that private credit assets under management will add almost another trillion dollars in the next five years to $2.3 trillion.

Much of that growth is expected to be driven not by borrowers that banks have been content to let go — small and medium-sized companies — but by loans to larger firms. That could encroach upon Wall Street’s lucrative leveraged finance business.

“Speed, certainty, confidentiality, and the ability of certain lenders to underwrite sizable financing solutions across the capital structure will continue to drive market share for private debt relative to the syndicated markets,” Ken Kencel, chief executive officer of Churchill Asset Management, said in a recent Q&A with Preqin.

Elsewhere:

China’s still-ailing property sector is getting a fresh round of support. Financial regulators and bad-debt managers plan to offer as much as 160 billion yuan ($24 billion) of refinancing help to high-quality developers, Bloomberg reported. Meanwhile, units of two builders sold their first state-guaranteed yuan bonds and defaulted peer CIFI Holdings is planning its second-such issuance after the Lunar New Year holiday.
China’s most-indebted developer, China Evergrande Group, has been discussing a proposal with creditors that includes two options to extend payment deadlines on unsecured offshore debt, Bloomberg’s Jackie Cai reported. Credit investors cheered long-awaited details about Fantasia Holdings Group’s restructuring offer, which includes a debt-to-equity swap.
French billionaire Patrick Drahi’s telecom company Altice France is looking to buy more time to repay its debt, offering a so-called amend and extend deal on about $8.4 billion of loans.
Pacific Investment Management Co. is gearing up to begin issuing collateralized loan obligations in Europe, marking a return of the behemoth US investment firm after more than a decade.
UBS analysts are recommending investors buy European credit over US debt amid signs of distress in the US loan markets, cracks emerging in private credit and a potentially severe downside risk in US high-yield debt.

–With assistance from Kevin Kingsbury, Yuling Yang, Silas Brown, Will Louch and Davide Scigliuzzo.