KKR Sees Signs of Life in $850 Billion Private Credit Market

(Bloomberg) -- The $850 billion private credit market is slowly coming back to life following an abrupt pause due to the Covid-19 pandemic, according to KKR & Co.’s co-head of private credit Daniel Pietrzak.

“We are starting to see a pickup in volume,” Pietrzak said in a phone interview. Though merger and acquisition deals are down compared to a year earlier, some private equity owners are exploring add-on acquisitions for their portfolio companies, allowing for the firm to provide additional loans for existing borrowers, he said.

“We also continue to see opportunity in private credit that is not in corporates, more asset-based finance,” Pietrzak said. “Post economic challenges, a lot of things can be interesting there.”

Pietrzak’s group, which is part of KKR’s $72 billion credit business, is being picky about new deals given unknowns as the coronavirus continues to spread.

“Our outlook on risk is cautious,” he said. “We are very open for business looking at new loans and prepared to deploy capital, but there are a lot of variables that are going to work through the system.”

One unknown is how middle-market borrowers will fare in the midst of pandemic-related shutdowns and steep drops in revenue for many industries.

“The numbers that we’ve seen out of companies have actually been pretty good, but we’re trying to see if those numbers are just capturing pent up demand or are they sustainable?” Pietrzak said. “How will the consumer react? We have a lot of different things to think about.”

The pandemic, the U.S. presidential election and U.S.-China relations are some of the top concerns for the private credit market going forward, Pietrzak said. The next few quarters and years will likely provide more clarity on default rates, which have already been on the rise for smaller borrowers, according to data from law firm Proskauer Rose LLP.

“There will be a continued trend toward economic stability and recovery but probably with some road bumps along the way,” he said. “I think it will be a bumpy and volatile second half of the year.”

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