US direct lending by private credit firms fell sharply in the second quarter, despite a rebound in fundraising by such firms. According to Preqin data, North America-focused closed-end direct-lending funds raised $16.25 billion in the quarter, up from $1.3 billion in the first quarter.

Decline in Lending Volumes

However, lending volumes moved in the opposite direction, with US direct-lending volume falling about 55% quarter-on-quarter to $33.59 billion in the second quarter from $74.67 billion in the first, according to PitchBook/LCD data. The deal count declined to 154 from 217.

Direct lenders are private-credit funds that lend directly to companies, often to finance buyouts, acquisitions, or refinancings, rather than arranging debt through banks or the broadly syndicated loan market. The split shows that money is still flowing into private-credit funds, but lenders are becoming more selective about putting that capital to work.

The slowdown reflects softer M&A and buyout activity, borrower delays, competition from the broadly syndicated loan market, and greater selectivity among private-credit managers, according to Jun Li, EY’s global and Americas wealth and asset management leader.

The pullback was sharpest in private equity-backed lending, a key source of direct-lending demand. Buyout firms use private-credit loans to finance acquisitions, but PE-backed direct-lending volume fell to $19.40 billion in the second quarter from $44.61 billion in the first, PitchBook/LCD data showed.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.