(Bloomberg) -- The slump in dealmaking that’s blighted an otherwise strong year for private credit looks to have run its course, at least according to Deloitte.

In a new report covering the third quarter of the year, deal flow has started to stage a rebound from the lowest volumes since 2020. In Europe, volumes jumped 24.3% from the second quarter, although the 138 deals inked during the three months that ended in September still lag the same period last year by 23%, according to the Deloitte Private Debt Deal Tracker.

Investors are flocking to the private market for loans where mostly unlisted companies can borrow directly, lured by double-digit returns that have just overtaken those available in private equity. Until recently their enthusiasm, and the $1.6 trillion they’ve amassed to spend on credit, had overshadowed the fact that many can’t find much to buy. Now things are starting to look up.

“I think we’re starting to see managers get back to a more normal deployment pace over their investment periods now,” said Dan Aylott, head of European private investments at Cambridge Associates.

The authors of the Deloitte report find greenshoots from signs that central banks are winding down the tightest monetary policy in a generation. That will help restore “a level of certainty” to deals that got stuck over questions of valuations, how companies will fare in a recession, and how indebted borrowers will withstand higher refinancing costs, they wrote. 

It’s a different story in the US, where the government’s antitrust stance may keep activity subdued for longer.

“One of the few disappointments of 2023 was the lack of new deal flow and M&A,” said Florian Hofer, director for private debt at Golding Capital Partners. “The debate now is if there’s going to be more of that in 2024.”

Read more: Deal Slump Tops List of Private Equity Worries at Zurich Meetup

Much of the activity in private credit this year has been driven by jumbo loans such as the €4.5 billion ($4.9 billion) financing package to Adevinta or $2.3 billion for the buyout of PetVet Care Centers, where private credit titans call the shots. But lenders to mid-sized companies, which have long formed the backbone of the private credit market, are still feeling the pain.

“Activity needs to be seen in the context of the last two years of busy deployment, but we’ve spoken to sponsors that haven’t done a deal all year,” Aylott said.

There are plenty of risks to derail the recovery, even if the direction of central bank policy becomes more certain next year. An election year in the US while wars rage in Ukraine and Gaza are just a few.

The Bank of England this week issued a warning that riskier types of corporate borrowing such as private credit and leveraged lending are vulnerable to “sharp revaluations” in credit markets. The central bank is also reportedly scrutinizing the exposure of Wall Street banks to private credit.

“I’m cautiously optimistic that 2024 will see good activity, but any kind of macro or geopolitical difficulty could derail that,” said Patrick Ottersbach, head of Macquarie Capital Private Credit.

Deals

  • The Ardonagh Group is considering refinancing its entire debt stack to help finance more acquisitions, in a deal that would rank among the largest ever for private credit
  • Whitehaven Coal Ltd has increased the size of its planned borrowing to $1 billion as the Australian mining company capitalizes on strong demand from private credit funds
  • Bad Boy Mowers has inked a $445 million term loan with a handful of lenders including private credit
  • A group of private credit funds are providing a €545 million debt package to support the acquisition of a stake in construction software maker Sogelink by CVC Capital Partners
  • SmileDirectClub Inc. is in talks with its founders and creditors about a plan to save the once high-flying dental aligner company from liquidation
  • Teleport, a subsidiary of Capital A which also operates budget carrier AirAsia, closed a $40 million four-year loan
  • A group led by HPS Investment Partners edged out Morgan Stanley to provide a $1.14 billion loan to Consolidated Precision Products Corp.
  • Platinum Equity-owned electronic equipment rental provider Electro Rent Corp. is working with a group of direct lenders to refinance debt
  • Carlyle Group Inc. provided a $150 million private credit loan to Freedman Group to finance its subsidiary RODE’s acquisition of Mackie
  • Rugby Australia signed a A$80 million five-year loan with Pacific Equity Partners to refinance existing debt and provide additional funds to fund the game’s development
  • Carlyle has closed an $800 million loan for Park County, the media company owned by the creators of South Park
  • A group led by Antares Capital provided $370 million of debt to finance KKR & Co.’s acquisition of fire and life safety equipment manufacturer Potter Global Technologies

Fundraising

  • The Chicago Teachers’ Pension Fund, Illinois’s oldest public retirement system, wants to enter the private credit market with an initial investment of as much as $350 million
  • RRJ Capital, the private equity firm founded by former Goldman Sachs Group Inc. banker Richard Ong, is seeking to raise as much as $2 billion for a new fund that focuses on private credit in Asia
  • Morgan Stanley has registered a private business development company that will make senior secured term loans to middle-market companies
  • French asset manager Eurazeo SE closed its sixth private credit fund, raising €2.3 billion to provide loans to small- and mid-sized European companies

Job Moves

  • Sumitomo Mitsui Banking Corp. appointed Yew Chuan Sim as head of private credit distribution for Asia Pacific in the loan capital markets department
  • Sebastian FitzGerald will join Skadden as a partner in its banking group in London

Did You Miss?

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  • Private Credit Edges Ahead of Private Equity on Investor Profits
  • Crescent’s Attanasio Says Private Debt Rush Boosts Liquidity
  • Tikehau Warns Higher Rates Mean Private Credit Faces Bumpy Ride
  • Banking Escapees Make Billions From Private Credit Boom

--With assistance from Silas Brown.

©2023 Bloomberg L.P.