Private credit finds its next big target: investment grade debt
Alternative asset managers such as Apollo, KKR and Blackstone are increasingly financing blue-chip companies, as businesses look for new sources of capital to help counteract the effects of higher interest rates and a slowing economy.
The deals — including two announced this month with AT&T and PayPal — underscore the growing reach of the private credit industry as it helps companies bypass traditional banks and bond markets to raise money.
Other deals, such as KKR’s agreement last week to purchase up to €40bn of consumer loans originated by PayPal, have more closely resembled traditional asset-backed securities. In those transactions, a pool of assets — such as mortgages, credit card receivables or auto loans — are packaged together, with the interest payments funding new slices of debt that are sold on to investors.
The use of insurance capital and private credit is just the latest example of blue-chip companies pairing up with alternative asset managers.
Intel last year struck a $30bn deal with Brookfield and its infrastructure funds, with the asset manager investing $15bn in a new chip foundry.
Intel, like most companies entering into these agreements, did not say how much it would pay Brookfield for the investment. However, its chief financial officer David Zinsner told analysts last year that Brookfield would receive part of the cash flows the plant generates once it is operational, giving the investment firm a return somewhere between 4.4 per cent and 8.5 per cent.
“It will protect our strong balance sheet,” Zinsner said of the deal. “It allows us to tap into a new pool of capital while protecting our cash and debt capacity for future investments.”
This story originally appeared on: Financial Times - Author:Eric Platt
