In the context of economic uncertainty, global credit markets are becoming more dynamic and flexible to meet changing needs.  

That was the central discussion of the “Credit, capital and confidence: Navigating global risks and seizing opportunities” luncheon panel at the 19th annual Toronto Global Forum, organized by the International Economic Forum of the Americas (IEFA).  

The panel featured:  

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  Kevin Sherlock, Head of Debt Capital Solutions and Private Credit, BMO Capital Markets 

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  Joseph Pinto, CEO, M&G Investments 

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  Duane Green, CEO, Aviva Investors (moderator) 

Today’s credit markets are more dynamic than they’ve ever been, explained BMO’s Kevin Sherlock, noting that there are several ways companies can gain access to capital to meet their needs, with private credit emerging as a source for credit along with bank lending. 

“There are companies that can support leverage above what banks are allowed to do, and private credit can fill this gap” Sherlock said.  

That theme is especially important now, as M&A activity has ramped up over the past few quarters. In this environment, it is important for businesses to be confident that they can access debt to finance a deal, Sherlock explained. 

To get deals funded, banks are increasingly partnering with private lenders, offering hybrid financing solutions. BMO was an early mover in this trend establishing private credit joint ventures with Oak Hill Advisors and Canal Road Group to provide private financing solutions to our sponsor clients. 

“The private credit market and the syndicated lending markets are in equilibrium,” Sherlock explained. “There are more opportunities for capital raising, for corporates and sponsors across both public and private markets that can be optimized to meet the strategic goals of the company.” 

As a global asset management company with US$400 billion of assets, including roughly US$30 billion in private credit, M&G Investments’ Joseph Pinto shares a similar view on the shift in debt markets. Today, the debt market encompasses lending, leveraged finance, and asset-based financing, providing critical support to businesses, particularly mid-market companies, seeking capital outside traditional banking channels, he explained. 

Geographically, private credit varies. The U.S. leads in private credit adoption, which is outpacing traditional lending. “In the U.S., about 75% of loans now originate through private markets, compared with just 25% through traditional banks,” he said. “In Europe, it’s the opposite.” 

Higher capital requirements are partly why European market growth hasn’t matched the U.S., although Pinto said Europe and Asia are rapidly developing their credit ecosystems. Emerging sectors are particularly benefiting from the flexibility of private credit, such as infrastructure and digital transformation.  

The energy transition is another area where private credit is helping Europe grow its private credit markets as the region tries to gain greater energy independence. 

Overall, the private credit market is growing rapidly. Regulators would like to see greater transparency and improved liquidity, particularly in Europe, said Pinto, adding there has to be a balance.   

As Aviva Investors’ Duane Green noted in his opening remarks, finding that balance is key not only to lenders, but to the global economy. "Credit is the fuel of growth, capital is its foundation, and confidence is what keeps it moving,” he said.  

High interest rates and inflation helped fuel the growth in private credit, but the environment is shifting, said Sherlock.  

Currently, there is a supply-demand imbalance in the market, he explained, with strong demand pushing down borrowing costs. That’s creating a strong market for corporate lenders.  

“It’s all about quality of credit, where you want to put your money at work,” he said. 

The panelists agreed that private credit will continue to be used as a complement to bank lending to finance the growth of the global economy. Hybrid financing models are a particularly important way to meet the changing needs of companies navigating global risks and new opportunities.