Private lending to big companies showing signs of froth, executives say

By Tommy Reggiori Wilkes

(Reuters) -Fears of a risky bubble emerging in the private credit market are overblown, but there are signs of lending standards weakening in the market for lending to large companies, executives from the industry said on Tuesday.

"The risk is when you have too much leverage and not enough liquidity you tend to have problems and I don't see us having that right now even in private credit," Anne Walsh, chief investment officer at Guggenheim Partners told the Future Investment Initiative (FII) conference in Riyadh.

Walsh, however, said there were signs of overleverage and reduced loan covenants in the market for lending to large companies, where competition is fierce.

Concerns about weak lending standards in credit markets have resurfaced after the recent collapses of U.S. auto parts supplier First Brands and car dealership Tricolor, with investors focusing on possible risks in a less-regulated market where companies have borrowed heavily from non-banks.

Executives in Riyadh dismissed these concerns, saying those collapses had little to do with private credit. Walsh said the industry enjoyed "lots of tailwinds" including U.S. fiscal and monetary stimulus and the AI investment boom.

However, some acknowledged there were certain problems appearing.

Competition for lending to large companies has squeezed private credit margins substantially over the last few years, with signs of "froth" emerging, said David Manlowe, CEO of Benefit Street Partners, a credit manager owned by Franklin Templeton.

"There will be segments of private credit that will prove to be in a bubble today, but overall we would all agree it's probably not bubbly," he said, shortly after a poll of the audience found 43% believed private credit was in a bubble and 57% did not.

Robert O'Leary, co-CEO at Oaktree Capital Management, said the artificial intelligence boom was creating an economy-wide bubble and direct lending was exposed because of the "preponderance" of loans to software companies. But the asset class had lots going for it too, he added.

(Reporting by Tommy Reggiori Wilkes, Editing by Iain Withers)