Akin Gump releases report examining COVID-19-era private debt market

Following a year of pandemic-related challenges, a new report from Akin Gump’s special situations group says that 2020 and the first half of 2021 still saw robust private equity (PE) activity, with healthy volume helping to drive significant demand for private debt lending to PE portfolio companies.

That is just one of the findings of Akin Gump’s “The Key Dynamics of Private Debt,” an analysis of trends in private debt fundraising and deal activity since the onset of the pandemic.

“The unique nature of the pandemic obviously created a great deal of uncertainty last year, yet we found that several private debt strategies adapted and capitalized on the brand-new market needs after the initial shock,” said Daniel I. Fisher, leader of Akin Gump’s integrated special situations group. “Given the uptick in fundraising in certain vehicles, there is clearly an appetite from both target companies and limited partners for swift, opportunistic players to capitalize on their established strengths.”

Among some of the other findings highlighted in the report:

  • Private capital fundraising, especially PE, still saw healthy levels of capital committed, even as the tally of closed funds plunged.
  • The trend of more experienced and larger fund managers still closing on significantly sized pools of capital also held true for the private debt universe.
  • Pandemic-driven drawdowns reduced record private debt capital overhang during 2020, but strong fundraising should help replenish.

Akin Gump finance and special situations partner Frederick Lee stated, “Flexibility was a key differentiator over the past year for the most successful private debt fund strategies, as was the level of sophistication and conservatism that fund managers brought to estimating recovery timing based on default scenarios. This report highlights how some of those strategies played out.”

“Looking ahead, there may be some interesting opportunities for private credit funds focused on real estate, as REITs and commercial realtors grapple with surges in demand in some locations, while others see slackening or flattening occupancy rates in the coming months,” added Akin Gump finance and special situations partner Jaisohn Im. “Additionally, we may also see public-private partnerships or privatization-focused efforts across different domiciles that could result in opportunities for major players within private credit.”