Banks Play Matchmakers in Private Credit Shift to High Grade

Ronan Martin, Francesca Veronesi and Josyana Joshua

Mon, Jan 20, 2025, 5:03 AM 4 min read

For banks, private credit’s advance into the universe of investment-grade debt isn’t the latest chapter of a years-long rivalry. Rather, the drive is helping them find partners, backed by billions in funds, that are less held back by regulators’ push to minimize lending risks. Private credit is now offering high-value, tailored deals, but leans on traditional lenders to be connected with clients.

The opportunity is immense, especially in the infrastructure and asset-backed space. Blackstone Inc. estimates that the potential scope for private high-grade asset-backed loans alone could surpass $30 trillion. In infrastructure, Apollo Global Management and Standard Chartered Plc just last week announced a partnership to invest as much as $3 billion in the low-carbon transition.

“It’s a win-win,” Alison Rose, senior adviser at Charterhouse Capital Partners and former chief executive officer of Natwest Group Plc, said at the Bloomberg Women, Money & Power event last month. “If I were sitting in a bank, I could be keeping the relationship, keeping the M&A, I’d have a balance sheet-lite income model, and I could partner with private credit for access to different debt.”

Previously, the formula to secure lending was simple: corporates would go to their banks. Flush with deposits, banks would aim to be a one-stop shop for clients. But much stricter regulatory requirements in the wake of the great financial crisis has made some lending simply too capital intensive for banks.

In the meantime, private credit’s giants are increasingly teaming up with well-funded insurance partners who are on the lookout for long-dated and higher quality investments, offering fresh firepower for a sector that is looking to expand its $1.6 trillion in assets under management.

“One of the biggest trends in private credit is moving into private investment grade or asset backed lending,” Scott Kapnick HPS Investment Partners’ Chief Executive Officer said last year during a teleconference on the firm’s merger with Blackrock Inc.

The scale and highly customized nature of what private credit investors have been able to finance is showing to be a world away from the bread-and-butter lending that banks typically do.

In November, Blackstone announced a $3.5 billion investment-grade private credit transaction for stakes in gas pipelines owned by EQT Corp. The deal was advised by Citigroup Inc. and RBC Capital Markets LLC.

Apollo led a mammoth investment of $11 billion related to an Intel Corp. semiconductor plant in Ireland last year, its largest high-grade private credit transaction to date. Goldman Sachs & Co. acted as lead financial adviser to Intel.

Banking Regulation

“Bank regulation will continue to drive assets off bank balance sheets and into private capital,” said Leslie Mapondera, Apollo partner and co-head of European credit. “The focus is on finding these bespoke investing opportunities that are perhaps too complex for the investment-grade bond market to stomach.”

At present, private credit is strongly relying on referrals from banks for investment-grade deals. Still, the sector views itself as a partner that can help traditional lenders enhance their return on equity.

“The relationship with banks is highly symbiotic,” said Rob Horn, Blackstone’s global head of infrastructure and asset based credit. “We approach it in a partnership fashion, and are actually enabling them to achieve where they’re going with their business models.”

And yet, for all the enthusiasm about a mutually beneficial co-existence, concerns linger over whether private credit would eventually chip away at banks’ position as the primary go-between.

“At what point does private credit take the relationship away from the banks?” Rose said.

Working Together

Private credit’s expansion wouldn’t develop as a seamless partnership of equals, said John Cronin, a financial industry analyst at SeaPoint Insights. “I’d be somewhat cynical about this kind of cozy relationship persisting into the future in perpetuity with no real disruption risk,” he said.

Still, private credit is a useful tool for banks to optimize their clients’ capital structure, said Giulio Baratta, BNP Paribas SA’s head of investment-grade finance debt capital markets for Europe, Middle East and Africa. Typical deals in the investment-grade space entail subordinated, asset-financing and quasi-equity transactions, he said.

“Private credit provides an opportunity for companies that are seeking bespoke forms of financing or capital raising, taking advantage of private credit’s highly customizable nature,” Baratta said. “It is the early stages of something very interesting.”

(Updates with comments from HPS’s CEO Scott Kapnick in the seventh paragraph)

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