A Look Ahead with Colbeck Capital's Jason Beckman and Jason Colodne
Colbeck's View on the 2024 Private Credit Market Opportunity
What opportunities are you finding within private credit in 2024?
Jason Colodne: The current higher-for-longer rate environment has enabled private credit spreads to remain elevated, increasing the attractiveness of the asset class while also creating a more significant investment opportunity set. Our pipeline quantity and quality look the best that we have seen in years. Such an opportunity set allows us to have greater flexibility around credit selection and helps to ensure that our underwriting process consistently yields strong returns.
How will the 2024 environment impact sponsor-backed lending versus non-sponsored lending?
Jason Beckman: We believe that within private debt, strategies outside of traditional sponsor-backed lending will be the most attractive in 2024. Unsponsored middle-market lending – when loans are made to companies not backed by private equity – presents a particularly appealing opportunity for private credit managers who can fill the void left by regional banks. The strategy benefits from a lower degree of lender competition and the sponsor-like, value-add approach can result in a better risk-adjusted return. Colbeck takes a hands-on approach with our unsponsored companies, beginning with deep due diligence, and broad-based support through monetization. Because non- sponsored lending is often viewed as a more challenging strategy, it is also less crowded. Our team is uniquely equipped with deep experience and a network of longstanding relationships.
What types of borrowers does Colbeck target?
Jason Colodne: Companies across regions and sectors are increasingly turning to non-bank lenders for their financing and refinancing needs. Our strategy generally focuses on borrowers without existing private equity sponsors, and within our area of focus, we have seen tremendous acceleration with a pipeline now 50% larger than historical levels. This type of deal structure allows us to engage with our portfolio companies outside of simple capital allocation to better assist our borrowers in executing their strategies and maximizing value. As the quality of entrepreneur-built enterprises continues to improve, we are looking forward to originating deals and forming successful partnerships going forward.
How are you monitoring risk in today’s higher interest rate environment?
Jason Beckman: As rates remain elevated, lenders are naturally able to achieve higher returns. Colbeck’s underwriting and structuring capabilities seek to protect the principal by avoiding binary outcomes. However, the rate environment has forced a number of borrowers into distressed situations, providing us with new opportunities to deploy strategic capital. Another area of focus is providing financing to platforms focused on growth through M&A. Colbeck’s industry agnostic approach allows us to be opportunistic with flexibility on transaction sizes and types. This can be particularly important in times of economic uncertainty when certain industries or borrowers may be more vulnerable to default.