FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit
A regulator observes that firms owned by private equity sponsors are shifting from public leveraged loan markets to private credit. Which borrower-side motivation is most consistent with this shift during periods of public-market volatility?
Borrowers and sponsors turn to private credit because direct lenders with committed capital can keep funding when public syndicated markets are disrupted, giving financing certainty. This differs from wanting public price discovery, since private loans are negotiated, held to maturity and not publicly priced.
- ADesire for financing that remains available and priced privately when syndicated markets are disruptedCorrect
- BPreference for continuous public price discovery of their debt
- CNeed for lenders with no ability to hold loans to maturity
- DWish to avoid any negotiation of terms with lenders
Explanation
When public markets seize up, direct lenders with committed capital can still fund deals, giving borrowers certainty. Borrowers do not seek public price discovery here, direct lenders typically hold to maturity, and private deals involve more negotiation, not less.
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