Pitchbook: 2024 US Private Credit Outlook: PE sponsors, investors eye busier year, along with defaults (Ted Denniston Quoted)

Private credit investors, looking ahead to next year, can expect a resurgence of deal activity, steady-to-tighter spreads, and a renewed focus on private debt recovery levels as defaults rise.

It was tough sledding when interest rates rose at their fastest clip in decades, slashing new origination volume in the first half of 2023.

Borrower companies and private equity sponsors have since adjusted to the higher-for-longer interest rate environment. Deal activity began picking up in the third quarter, raising hopes for more robust origination volume to continue in 2024.

“We’ve skied down the first part of the mountain,” said Ted Denniston, co-head of NXT Capital, referring to the challenges posed by interest rate hikes for new issuance over the past year. NXT focuses on the lower middle market. “We’ve seen deal flow get back to our historical average. We think we’ll see good deal flow in the first half of 2024.”