The Great Credit Convergence

Some notes I made recently that people may find interesting on the changing world of credit, and its implications for a capex-heavy future and data center finance. Recent growth in private credit has its roots in orthodox banking's retreat under regulatory oversight after the 2007/8 financial crisis.

By the Numbers

• $1.7T: Size of the private credit market, now matching high yield and syndicated loans.
• ⅓ each: Below-investment grade (IG) debt now split evenly among high-yield, broadly syndicated loans (BSL), and private credit.
• $28B: Volume of loans migrating between the public and private markets in 1H 2025.

Source: Oaktree

Why It Matters

• Borrowers have options. Large sponsors toggle between negotiated private loans and syndicated placements, depending on speed, leverage, and certainty.
• Hybrid deals dominate. Syndicated first liens paired with private seconds or Term A/Term B splits blur traditional categories.
• Execution, not structure, now drives capital-raising decisions.

The Convergence

• Structures are merging: leverage ratios, covenants, and pricing are nearly identical across markets.
• Investor base overlapping: institutions, BDCs, interval funds, and retail-facing vehicles now buy both.

The CapEx Supercycle

• Lenders are very long that the near future will be capex-driven—a reversal of the “asset-light” 2010s.
• Demand engines:
  • Data centers
  • Defense and reshoring
  • Energy
• These projects require trillions in long-duration financing across banks, private lenders, and securitized channels.

Beyond Direct Lending

• Core remains sponsor-backed first-liens, but growth is mostly in:
  • RMBS and asset-backed finance tied to CapEx cycles
  • Collateralized loan obligation debt and equity