Private credit’s next chapter: How U.S. corporates and asset managers are redefining risk and growth

A decade ago, private credit was widely regarded as a cyclical phenomenon – a solution that flourished when banks were constrained, then receded as conditions normalized. Today, it is hard to argue that private credit is anything other than a permanent fixture of global corporate finance.

The push and pull dynamics are clear. On one side, regulatory pressure – from Basel IV to successive stress tests – have forced banks to hold more capital against riskier or illiquid loans. The result has been a marked retreat from longer-dated, more complex corporate lending. Banks prefer shorter, lower-risk exposures that can be more easily managed within stricter capital frameworks.

On the other side, corporates’ need for capital keeps growing. Post-Covid supply chain realignments, investment in artificial intelligence, and the race to globalize are just a few of the pressures creating strong demand for funding. No management team wants to be left behind, and yet the institutions that traditionally supported expansion have narrowed their horizons.

That supply-demand imbalance has been the opening for private credit funds. What began as a yield opportunity has grown into a structural shift. Private equity sponsors, facing higher bank debt costs and heavily leveraged portfolios, have increasingly turned to private credit. In my experience advising corporates across multiple jurisdictions, the speed and certainty of execution private credit offers is often valued more highly than marginal cost of capital. 

Flexibility and growth capital


For corporates, the appeal lies in flexibility. The M&A market has yet to fully recover, exit activity remains subdued, and refinancing needs are mounting. Private credit offers a way through, from carve-outs and bridging loans to growth capital for mid-market firms unable to access bond markets. In some cases, corporates can even secure competitive alternatives to traditional channels, particularly where bespoke structuring is valued.

Specialist lenders are also expanding their footprint in distressed debt and special situations - areas banks are moving away from. This breadth means private credit can meet corporates across the cycle: providing growth capital in good times, liquidity and breathing room in downturns, and bespoke structuring in complex M&A.

Managing risk: structuring and discipline


The charge that private credit is inherently riskier, often because of “covenant-lite” assumptions, is too simplistic. In practice, private lenders often have closer oversight of borrowers than banks, combining frequent monitoring with detailed structuring tools.

Covenants, security, and position in the capital stack remain central. Lenders use collateral pledges, liens, and cash-sweep mechanisms (which oblige borrowers to overpay when their cash flow is strong) to manage downside risk. Equity kickers and liquidity reserve requirements are deployed to balance flexibility with prudence.

Of course, there is competition. In the US, where demand for capital is hottest, covenants are loosening as managers bid for deals. Sponsors are pushing for higher leverage and weaker terms, and in many cases are succeeding. The trade-off is clear: those offering greater flexibility and faster execution are often favored by sponsors, though this can involve a loosening of traditional covenants, especially in special situations. By contrast, Europe remains more conservative, with tighter governance and less appetite for aggressive structures.

For investors, the sustainability of the model comes down to discipline. Diversification across core high-quality lending and higher-yield special situations, rigorous structuring, and constant monitoring are essential. Over-leverage in correlated sectors is the biggest danger.

The future of private credit


The key question is whether private credit remains a high-growth asset class. Fundraising has surged in recent years, driven by pension funds, insurers, and sovereign wealth funds rebalancing from traditional fixed income into private debt. Contractual yield in a higher-rate environment is attractive, and private credit provides it.

That said, moderation is inevitable. LPs are facing allocation pressures, and fundraising will slow from its breakneck pace. But a reversal is unlikely: private credit is now strategically embedded in institutional portfolios. The shift is from opportunism to permanence.

Innovation is likely to drive the next phase. NAV lending, GP-led secondaries, and funds financing funds are expanding rapidly, alongside sector-specific strategies in infrastructure, asset-based finance, and specialty credit in technology and healthcare.

What it means for corporates


For corporate CFOs, the message is straightforward: private credit is no longer just debt - it is a partnership model. Speed, discretion, and flexibility are often worth more than marginal differences in cost of capital. For mid-market borrowers in particular, private credit is not a last resort but a first-choice option. For service providers and advisors like Ocorian, the challenge is ensuring governance, reporting, and structuring standards evolve in step with this new reality.

The lesson of the last decade is that private credit is not a stopgap but a structural complement to bank lending. As regulatory constraints continue to shape the behavior of banks, and corporates continue to seek growth in an uncertain environment, private credit has cemented its place at the heart of corporate finance.

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This article first appeared in FT’s FundFire.