"Dealflow is getting harder and harder," say several SBICs.
Private credit (incl. SBIC) was all the rage in 2023, and LPs loved the cash yield, top seniority, and promise of double-digit returns.
However, in the absence of dealflow, caused by the relentless influx of new lenders, we might soon see consequences too much (debt) capital chasing too few deals. Like every other form of credit ever popularized, oversupply can be treacherous:
More profitability → More entrants → More competition → Lower pricing → Margin compression → Need more volume → Less time for DD → Underwriting suffers → Quality declines → Higher risk of defaults
Even worse: many of the loan issuers receive year-end bonuses for loans made, not loans repaid.
I'm hopeful that SBICs and other private credit aren't issuing loans that shouldn't be made. I'm furthermore hopeful that the valuation discipline exhibited in the deal-by-deal ecosystem (see Axial 2025 IS Report) lowers the risk of distress. Good luck.
