MARKET TENOR
Although market conditions are difficult for venture-backed firms that require capital and PE-backed companies that need to refinance debt, the presumably imminent recession is not yet visible. Among the missing signposts are credit, which has yet to crack though corporate bankruptcies are up notably so far in 2023 vs the past several years. Credit spreads for BB and B-rated companies have widened a bit but have not gapped wider as would be expected six months or so before a recession really gets going. Only spreads on CCC-rated credits are circumspect, as high leverage and weak financial performance are not a great combination when interest rates are rising and the economy is slowing.
Ares Capital Corporation (NYSE: ARCC) CEO Kipp DeVeer offered a nuanced view of private credit on April 25 when the company released its 1st quarter earnings. The markets are tight, but Ares is prospering while awaiting the yet to develop recession. DeVeer noted that 95% of 1Q23 LBO financings were provided by private capital providers compared to 77% in 1Q22 and 57% in 1Q21. Owl Rock Capital Corporation (NYSE: ORCC) reported that the average mark on its debt portfolio was 97.6% as of March 31, 2023, up from 97.0% as of year-end. Portfolio company revenues and EBITDA were described as growing but at a slowing pace.
Nonetheless, market conditions are challenging in which equity raises generally require the issuer to accept a lower multiple and debt investors to accept a higher coupon. Through May 15, only $18 billion of registered common stock had been raised, down nearly 80% from the heady days of 2021 but not so much as 2022.
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Also in This Issue
Updated Metrics for
Private Credit and Equity
Publicly Traded Private Credit
Venture Capital