Strategic View: Private credit club deals became a prominent feature in Q4 2024 as competitive deal environments and mega-transactions pushed lenders to syndicate risk across multiple direct lending funds. Spreads stabilized at S+500-549 bps for new-issue sponsored direct lending, while club structures enabled $10B+ LBOs that single lenders couldn’t accommodate.
Full story: Private credit just discovered what PE learned decades ago: clubs make big deals possible. Q4 2024 witnessed explosive growth in Direct Lending Clubs—multiple credit funds co-lending on single transactions rather than competing for exclusive mandates. The drivers? Deal sizes averaging $500M-$1B in enterprise value require $300M-$700M debt packages that exceed single-lender concentration limits.
The Market Dynamics are fascinating. In 2021-2022, direct lenders competed fiercely for exclusivity, offering aggressive terms to win sole-lender status. That created portfolio concentration risk—if one deal blows up, it craters fund returns. Now, with $2.5 trillion in private credit dry powder chasing deals, lenders are syndicating not because they lack capital, but because Risk Management demands diversification. Club deals allow funds to participate in trophy assets (Permira/Squarespace, Thoma Bravo/Darktrace) while capping exposure at 5-8% of AUM.
Pricing has stabilized. New-issue spreads cluster around S+500-549 bps (SOFR + 500-549 basis points), with attachment points at 40-45% loan-to-value. This is materially tighter than 2023’s S+600+ environment, reflecting lender competition and sponsor bargaining power. But covenants remain tight: maintenance-based financial tests, restricted payment baskets, and sponsor equity cure rights that protect lenders if portfolio companies stumble. The Club Structure Mechanics vary—sometimes one lender leads with administrative agent duties, sometimes it’s genuinely shared governance with intercreditor agreements governing amendment thresholds and enforcement rights.
The Investor Implications are mixed. For LPs in direct lending funds, clubs reduce single-asset risk but also dilute upside when star borrowers outperform. For sponsors, clubs provide certainty of execution—knowing three lenders collectively commit $600M beats hoping a single lender can close $600M amid market volatility. For the financial system, private credit clubs create interconnectedness that regulators are only beginning to monitor. If multiple funds lend to correlated sponsors (say, five lenders each participating in 8 Thoma Bravo deals), systemic risk concentrates despite diversification theater. Expect regulatory scrutiny to increase as private credit approaches $3 trillion AUM globally.
Summary: Private credit club deals surged in Q4 2024 as transaction sizes exceeded single-lender concentration limits, driving syndication across direct lending funds. While clubs enable mega-LBOs and distribute risk, they also create systemic interconnectedness that could amplify stress if sponsor portfolios underperform, attracting increasing regulatory attention.
Source: ICLG Global Trends in Leveraged Lending, Weil Private Equity Sponsor Sync Autumn 2024, 9fin Taking the Credit 2024
