Credit Shop Antares Sees ‘Green Lights’ Ahead for Private Debt

(Bloomberg) -- Growing confidence in the U.S. economy, the effects of fiscal and monetary stimulus and an expected rebound in acquisition activity are making for a positive outlook for the $890 billion private debt market, according to Antares Capital.

“All the lights are green,” Chief Executive Officer David Brackett said in an interview.

In a survey released by Antares Monday, 79% of loan investors, 75% of private equity sponsors and 65% of middle-market borrowers said they were confident in the U.S. economy over the next 12 months. Over 80% of investors and sponsors said they see a recession as unlikely, while 73% of borrowers said the same, according to the survey of more than 160 participants completed in early February.

More than half of sponsors and investors said they expected M&A activity to increase -- buoyed by liquidity in capital markets and high dry powder levels -- following depressed activity at the advent of the pandemic.

The deal pipeline for Antares, a middle-market private debt firm with more than $30 billion in assets under management, is comparable to pre-Covid levels, according to Brackett. That follows a period of “explosive” volume to end last year. The firm wrapped up about $9.2 billion of transactions in the fourth quarter of 2020, compared to $3.8 billion for the same period in 2019, he said.

A backlog of middle-market M&A activity means more transactions should be hitting private credit firms’ desks in roughly a month, after a typical lull to start the year, Brackett said. 2021 activity levels should be “robust” and stronger than 2019 levels in part due to a pent-up supply of companies borrowing and private equity-backed firms exploring tack-on acquisitions, as well.

Fundraising Outlook

Many investors that were concerned about the late stage of the credit cycle and looser loan documents before Covid are now eager to put their capital to work in the asset class -- some for the first time. This comes as firms are looking to raise a record $301.4 billion for private debt-focused funds, according to London-based research firm Preqin.

Positive middle-market loan performance during last year, as well as a shift toward floating-rate assets as an inflation hedge could also be a boon.

“We’re seeing tremendous investor appetite,” Brackett said.

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