FILE PHOTO: People walk across the London Bridge during the morning rush hourLONDON - Direct lending, a key but expensive source of credit for riskier European firms that banks often shy away from, is running out of steam, a fresh sign that aggressive interest rate rises may be starting to cause funding stress and exacerbate economic pain.The European private credit industry, which flourished after the 2008 financial crisis as capital-constrained banks cut lending, has raised 26.
The European Central Bank has delivered 425 basis points of tightening this economic cycle and the BoE more than 500 bps. Now, those moves are beginning to bite. Deals are "taking longer than they have traditionally", he said, adding Deloitte was seeing an "uptick" in private lenders demanding debt-for-equity swaps, the practice of taking ownership of a business when borrowers struggle to repay debt.Private loans could pick up later in the year, Cruickshank said, but were unlikely to reach levels that would "reverse what has been a poor year to date".
"You will see lenders in certain sectors of the industry dealing with their own portfolio issues," instead of making fresh loans, he said. "There's plenty of dry powder," said Fidelity International's head of private credit strategies Michael Curtis, referring to capital raised already. "It's more a question, for us, of finding the right deals to do."
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