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FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

A research team studying the growth of private credit examines why mid-sized firms increasingly borrow from direct lenders rather than from banks or public bond markets. Which borrower-side feature is most consistent with the demand-side explanation for private credit growth?

Borrowers value speed, execution certainty and bespoke terms from a small lender group. Direct lenders can underwrite quickly and renegotiate easily, which attracts mid-sized and sponsor-backed firms. Public markets involve disclosure, dispersed holders and less flexibility, so they are not the draw.

  1. ABorrowers value speed, certainty of execution and flexible bespoke terms from a small group of lendersCorrect
  2. BBorrowers prefer the public disclosure and daily price discovery of broadly syndicated loans
  3. CBorrowers seek loans with lower seniority to reduce covenant coverage
  4. DBorrowers want lenders with large numbers of dispersed holders to simplify renegotiation

Explanation

Demand-side explanations stress that private lenders offer speed, certainty and tailored terms, and that renegotiation is simpler with a few lenders. The other options describe features of public markets or are contrary to borrower preferences.

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