It is an attractive time to be a private lender—if you have the dry powder to take advantage of the next opportunity!

For years, private credit was mostly a cash flow loan product with interest spreads higher than commercial banks. These cash flow loans did not directly compete with a commercial bank’s asset-based loans (ABLs), as the banking system was in retreat and private credit filled the void. This is not to say commercial banks stopped lending; they were being more cautious about extending new loans, rolling existing loans, and, in some cases, selling off assets to raise capital and liquidity.

Given the article below that explores the recent $5 billion BNP investment with Apollo, the private credit addressable market has expanded—the go-forward opportunity could be in ABLs directly competing with the commercial banks. Previously, these loans did not create enough profit needed for private credit, and commercial banks can offer these products cheaper as they have a lower cost of capital.

CFOs should be aware that while the commercial banks typically do not want to own assets in a workout, private credit is more aggressive with their options to recoup their investment collateral.

The French bank is committing funding for investment-grade, asset-backed deals originated by Apollo, as well as the Atlas SP arm it acquired from Credit Suisse. BNP will start by pledging a $5 billion facility and plans to increase that over time. “This is one of – if not the – largest-ever, long-term private credit financings,” said Jim Zelter, Apollo’s co-president. If securitizations follow, the companies will partner on them. Atlas SP is central to Apollo Chief Executive Officer Marc Rowan’s ambitions to build a credit machine that rivals Wall Street banks. He wants Apollo’s 16 origination platforms — which offer mortgages, aircraft loans and other debt that can be structured into private credit investments — to generate $200 billion to $250 billion in annual volume in five years.

https://finance.yahoo.com/news/apollo-snags-5-billion-bnp-120100018.html