Wall Street Nabs Deals From Private Credit With Cheaper Rates

(Bloomberg) — Wall Street scored another coup against private credit arrivistes this week when investment bank leveraged finance teams snared a $1.2 billion deal from one of direct lending’s biggest borrowers, Ardonagh Group Ltd.

Ardonagh tapped Morgan Stanley, Bank of America Corp. and JPMorgan Chase & Co. to partly refinance private credit debt, raising a $700 million leveraged loan along with $530 million in high-yield bonds. Big banks have successfully refinanced a series of direct loans recently, usually allowing the borrowers to cut their funding costs.

Earlier this week, casual dining chain Wagamama Holdings Ltd launched a £330 million ($410 million) bond to repay a private credit facility. In December, EQT AB-backed Dechra Pharmaceuticals raised approximately $1.4 billion in euro- and dollar-denominated loans to refinance direct lenders, Bloomberg News reported.

Such deals are wins for investment banks that have had to fight harder for business against fast-growing direct lenders in the last few years, and have often lost. In 2024, more than $34 billion of broadly-syndicated loans were refinanced by direct lenders, while approximately $30 billion of private credit loans moved to banks, according to a JPMorgan report published in December. 

Jeremy Burton, a portfolio manager who covers US high-yield and leveraged loans for Pinebridge Investments, said banks’ appetite to syndicate more transactions has risen in lock-step with heightened demand from the biggest buyers of leveraged loans — collateralized loan obligations.

“Banks acknowledge that they lost some market share, and they are being much more aggressive to get market share back,” Burton said. “There is also a material increase in demand from existing CLO channels.”

While the odds the Federal Reserve will keep lowering rates for much longer have dwindled, investors have an insatiable demand for more deals. That’s helped investment banks’ leveraged finance desks win acquisition-linked financings away from private credit, and snap up more deals like Ardonagh to refinance debt from direct lenders.

“One constant about the broadly-syndicated loan market, when it is working — and today’s market is working very well — it is hard to beat the pricing,” said John McAuley, the head of debt capital markets for North America at Citigroup Inc.

Take Ardonagh’s $700 million loan; that priced at 3 percentage points over the Secured Overnight Financing Rate, and included a quarter point step-down should the company reduce its leverage. 

It’s not the first time Wall Street banks were able to steer the UK-based insurance broker away from private lenders and into the broadly syndicated market. Last February, Morgan Stanley and Goldman Sachs Group Inc. diverted a large chunk of a multi-billion debt package for Ardonagh out of the private market. Ardonagh’s $3.3 billion private credit loan led by Ares Management Corp. paid 4.75 percentage points over the US benchmark, Bloomberg News reported at the time.

Aerospace vendor Circor International Inc. also opted for a syndicated loan to repay direct lenders last September. Jefferies Financial Group Inc. led the $650 million, seven-year loan that priced at 3.50 percentage points over SOFR, saving the company roughly 2.25 percentage points in borrowing costs, Bloomberg reporting showed.

Fighting for Share

Still, direct lenders have proved themselves capable of clawing deal flow away from Wall Street’s biggest banks.

Blackstone Inc. led a direct loan of just under $4 billion to Clario, a clinical trial manager for drug developers, Bloomberg News reported this week. The proceeds, among other uses, refinanced about $2.5 billion of debt from the broadly-syndicated loan market.

Direct lender Blue Owl Capital Inc. is leading roughly $4 billion of loans for PCI Pharma Services that would refinance the company’s existing debt, Bloomberg reported earlier this month.

While syndicated loans are proving cheaper for borrowers, private credit firms still tout their willingness to absorb greater leverage and tweak loan structures with payment-in-kind features and delayed-draw services as advantages over the traditional bank market.

“Things that do not work in the syndicated market, like PIK features built into loans. Those are perfect for private credit. And yes, they will be compensated more for it,” Pinebridge’s Burton said. “Both markets fulfill different roles. Private credit has more flexibility on their structure, whereas the broadly-syndicated market has a pricing advantage.”

–With assistance from Silas Brown and Davide Scigliuzzo.

(Updates to add Bank of America as lender in second paragraph.)

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