The Promise and Peril of Private Credit

Abstract

This paper explores the evolving role of private credit in corporate debt financing, examining its rise as an asset class and the implications of its rapidly growing market share. The paper begins by outlining traditional methods of debt financing, including bank loans, syndicated loans, and bonds, highlighting the rising prominence of private credit as an alternative lending mechanism outside the traditional banking system. Given private credit's "boom" in recent years, the paper describes its unique features and the structure of relationships between the various parties involved in these transactions. It also addresses concerns around transparency and the need for additional disclosure requirements in light of private credit's expanding influence. The paper is divided into three parts: Part I provides an overview of the private credit market's evolution and current landscape; Part II compares private credit with traditional lending and private equity; and Part III evaluates the existing regulatory framework and related recent criticisms.