Capital Thinking
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Capital Thinking
By Davidson Hall, Managing Director, Co-Head of Debt Capital Markets
A powerful transformation has reshaped capital markets in recent years. Driven by the dual forces of systemic regulation in traditional banking – which has imposed stricter capital requirements and lending standards both in the U.S. and abroad – and a surging global investor appetite for alternative assets in the search for yield and diversification, private credit has assumed a key role in today’s lending landscape.
As the demand for debt from private equity sponsors and owner-operated businesses accelerates, the private credit industry continues to expand at a rapid pace. According to the Federal Reserve the private credit market in the U.S. is estimated at approximately $1.35 trillion. While some industry observers believe the rise of this burgeoning asset class is poised to moderate in the near future, a closer look at the broader backdrop suggests otherwise.
Consider, for example, that JPMorgan Chase – the world’s fifth-largest bank – holds total assets of more than $4 trillion. The fact that a single banking institution is more than double the size of the entire U.S. private credit market points to a considerable growth runway for alternative lenders. In other words, even in a maturing market, there remains ample headroom for expansion.
Flexibility comes to the fore
Despite lacking the sheer scale of long-established banking behemoths, many non-bank lenders have already become formidable players in their own right. Ares, a leading global alternative investment manager, has approximately $572 billion in assets under management.
This magnitude and reach bring tangible advantages. Scale can translate into competitive borrowing costs, which in turn can be passed along to clients. In many cases, the interest rate differential between traditional banks and non-bank lenders has narrowed to a negligible margin.
However, the true competitive edge of private credit providers is flexibility. Free from the stringent regulatory constraints that limit banks, private credit entities can deliver innovative and bespoke financing solutions that are often beyond the scope of traditional lenders.
Navigating a complex market
In a lending environment now defined by both traditional banks and non-bank providers, sourcing the right capital on the best possible terms is increasingly challenging for business owners and corporate management teams. This is where the value of experienced, independent advice becomes indispensable.
The highly experienced, eight-strong Stephens Debt Advisory offers precisely this – independent, objective perspectives combined with deep market access. Drawing on long-standing relationships with hundreds of credit providers, Stephens can run competitive processes designed to secure optimal structures for each client’s unique needs – whether the objective is lowering the cost of capital, funding an acquisition, or enabling shareholder distributions.
The results are measured not only in monetary terms, but also in the most valuable resource of all for business leaders: time. This allows corporate management teams to focus on executing their strategic priorities.
Achieving real-world results
The benefits of this approach are best illustrated through client outcomes. For example, Stephens advised a family-owned consumer company on a refinancing process designed to support both future organic growth and M&A opportunities.
The company faced several challenges, including a complex cash flow profile, intercreditor dynamics with existing lenders, and vacant management positions. Through a highly competitive process that engaged more than 200 potential lenders and investors that generated more than 20 indications of interest, Stephens was able to secure financing on desirable terms. The result was minimal cash pay interest, enhanced operating flexibility, and a structure that minimized dilution – positioning the company to pursue its strategic growth ambitions.
In another instance, Stephens supported a family office-owned infrastructure business seeking asset-based lending (ABL) and term loan financing. Many lenders side-stepped the company due to the sector’s inherent cyclicality, while it also needed to overcome other hurdles, including conservative advance rates, the absence of long-term customer contracts, and a decentralized base of equipment. Despite this, Stephens emphasized the company’s experienced management team and strong blue-chip customer relationships, which generated numerous term sheets across the capital structure and ultimately secured competitive ABL financing with favorable interest and advance rate.
Opportunities through uncertainty
While macroeconomic and geopolitical uncertainty have temporarily slowed M&A activity, non-bank lenders remain highly active. With capital to deploy and investor distributions to maintain, they are seeking creative avenues to fund growth. But while the current environment may be somewhat unpredictable, it is accompanied by a discipline and selectivity that prevents a slide into recklessness.
As the private credit market continues its rise, Stephens stands ready to guide clients through this complex and evolving landscape – delivering tailored debt solutions and strategic insight to position them for long-term success.
