In a recent analysis, Egan-Jones addresses how private debt is reshaping funding markets.

The report outlines how banks, historically the primary source of business funding, have become more restrictive following deposit shifts and the collapse of Silicon Valley Bank. As banks tightened the maturity and terms of loan portfolios, private lenders stepped in to meet the needs of small and medium-sized businesses requiring longer term financing. The article notes advantages of private lending including:

• Match funding, providers of private debt typically have sources of capital which are longer term and therefore do not have to worry about a “run” on their funding source as banks do.
• Little community threat, in contrast to banks, private lenders typically have little “footprint” in the local community and therefore are less of a threat to the broader economy.
• Little government exposure, unlike banks, private debt is not backstopped by the federal government and therefore reduces risk to the financial system.
• Flexibility, unlike banks, private debt can tailor terms to borrowers’ needs, providing longer-term or flexible funding for expansion or acquisitions when banks, concerned about extended exposures, may not be the ideal source.

Several examples of recent failures are examined. In discussing TriColor, the article highlights weakened subprime auto credit performance, fraudulent pledging of assets, increased delinquencies, longer financing terms, and a softer used vehicle market. Regarding First Brands, the article cites overexpansion, alleged masking of debt via off balance sheet borrowing, and challenges integrating operational systems. In retail, the article points to pressures facing Saks Global, noting: “Sales at Saks Fifth Avenue and Neiman Marcus have declined, with Saks' sales falling 16% and Neiman Marcus' sales falling 10% in the quarter that ended in June.”

The piece concludes that while failures are inevitable in any investment category, private debt fills a critical need and provides a valuable service to the economy. It emphasizes that vigilance and prudent structuring remain important as the market continues to grow.

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Egan-Jones highlights how private debt is reshaping funding markets, noting its advantages over banks, recent failures that reveal risk, and the need for vigilance as private debt markets expand.