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

Which development on the borrower side is most consistent with the observed shift of leveraged finance from banks to private credit funds after post-crisis bank regulation?

Sponsor-backed and middle-market firms turned to non-bank direct lenders because post-crisis regulation constrained banks' leveraged lending. Private credit funds, not bound by the same capital rules, filled the gap, while large investment-grade issuers continued using public markets.

  1. ASponsor-backed and middle-market firms found bank leveraged lending constrained and turned to non-bank direct lendersCorrect
  2. BLarge investment-grade firms stopped using public bond markets
  3. CSponsors stopped using leverage in acquisitions
  4. DBorrowers began demanding lenders with higher regulatory capital charges

Explanation

Tighter bank capital and leveraged lending guidance reduced bank appetite for riskier middle-market loans, and non-bank lenders filled the gap. The other options do not describe this shift.

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