Direct Lending: Recent Trends and Outlook for 2024

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2023 was a record year for Prudential Private Capital’s direct lending business. Despite the challenging environment for M&A and leveraged-loan activity, Prudential Private Capital’s direct lending team generated new direct-loan originations worth nearly $2 billion across more than 50 transactions. Looking forward, as the macroeconomic backdrop continues to stabilize, this will likely lead to a resumption of M&A activity as well as general capital investment across the direct lending markets.

Factors underpinning growth in 2023

The conditions for growth last year were far from favorable, with central banks continuing to tighten monetary policy in2023 and rising financing costs across the marketplace. Despite these challenges, Prudential Private Capital continued to expand in the core US market, as well as in Europe, Australia and New Zealand, and Latin America. The increasing liberalization of the direct lending market outside the US played an important role, with Prudential Private Capital closing inaugural financing for issuers and sponsors in countries such as the Netherlands.

How is the direct-lending environment likely to change in 2024?

Overall, last year marked a low point of financing activity in the marketplace. As the economic environment continues to stabilize, with central bank interest-rate cuts expected throughout the year, borrowers and private-equity sponsors should feel more comfortable taking financing.

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