Direct Lenders Embrace Non-Sponsor Owned Companies in Competitive Market

Direct Lenders Shift Focus to Non-Sponsor Owned Companies in Competitive Market

As competition intensifies in the sponsor-backed lending market, direct lenders are turning their attention to non-sponsor owned companies as a new opportunity for growth. Christophe Rust, co-head of European credit opportunities at NinetyOne, revealed that the investment manager’s private debt portfolio is exclusively made up of non-sponsor owned firms.

While many asset managers traditionally view sponsor-backed lending as less risky, Rust believes that non-sponsored lending presents a relatively untapped opportunity for those with the expertise and contacts to originate loans in this space. He emphasized the importance of picking the right credit and highlighted the potential for superb non-sponsored borrowers.

Despite the challenges of loan origination in the non-sponsor space, Rust estimates that around 70% of assets in the private credit markets are currently with sponsor-owned borrowers. However, some private credit fund managers are making a concerted effort to attract more non-sponsor business as a point of differentiation in the market.

While some managers, like Bridgepoint’s Andrew Cleland-Bogle, primarily focus on sponsor-backed companies, others see the potential for fantastic risk/return in the non-sponsor market. Blair Faulstich of Benefit Street Partners emphasized the need for credit managers to differentiate their portfolio construction and cautioned against assuming that sponsor-backed lending is a guaranteed way to mitigate risk.

Moody’s senior vice president Jeanine Arnold stressed the importance of fundamental credit analysis in assessing risk, regardless of whether a company is sponsor or non-sponsor owned. In a competitive and evolving market environment, direct lenders are adapting their strategies to capitalize on the opportunities presented by non-sponsor owned companies.