[Edaily Marketin YunJi Kim Reporter] As the syndicated loan market regains momentum, U.S. companies are crunching the numbers on their financing options. While some companies are switching from private loans to syndicated loans in an effort to reduce interest payments even slightly, others are opting for private loans despite having to accept higher interest rates. Companies’ choices are diverging not only based on financing costs but also on how quickly and easily they can secure the loans.

$16.4 Billion Shifted in the Third Quarter Alone… Goodbye, Private Debt

According to LCD, a global leveraged loan market analytics firm, on the 22nd, the amount of

private debt

refinanced into syndicated loans in the U.S.

during the

third quarter of this year reached

$16

.

39 billion

(approximately 21.7052 trillion won). Conversely, the amount of funds moving from syndicated loans to private debt totaled only $2.6 billion (approximately 3.44 trillion won). This means that the amount of funds shifting from private debt to syndicated loans was more than six times greater than the amount flowing in the opposite direction.

Just a few years ago, the situation was exactly the opposite. As recently as 2022, more companies in the U.S. were moving away from syndicated loans toward private debt. At that time, when it was difficult to secure funding in the syndicated loan market due to high interest rates and financial market volatility, private debt served as an attractive alternative for companies. This was because, unlike syndicated loans—which require participation from multiple investors—companies could secure the necessary funds by negotiating with just a few asset managers.

However, as funding conditions in the syndicated loan market have recently improved, companies’ choices are shifting. With competition over loan interest rates intensifying, companies are now able to borrow funds at lower rates than in the past. This is why companies that previously turned to private loans because they struggled to secure funding in the syndicated loan market are now turning back to syndicated loans to reduce their interest burden.

In fact, U.S. asset management firm Mercer Advisors significantly reduced its interest burden this month by refinancing its existing private debt with a syndicated loan. Mercer had previously borrowed approximately $1.6 billion from global private debt managers but recently repaid its existing debt through a $1.9 billion syndicated loan arranged by Goldman Sachs and others. According to a statement released by the company this month, this refinancing lowered the loan interest rate by 1.75 percentage points, and the company expects to save $35 million to $40 million in annual interest costs next year. In addition, global insurance underwriter Fidelity Partnerships began the process of refinancing approximately $2 billion in private debt into a syndicated loan last August.

From Syndicated Loans Back to Private Loans… Some Are Making a U-Turn

While this is a welcome change for companies, the situation is different for private loan managers. When existing loans are repaid, they must reinvest the recovered funds, but securing new borrowers is not easy. According to LCD, direct loan disbursements in the third quarter of this year totaled $49.77 billion, down 28% from the same period last year. With new lending also on the decline and existing borrowers leaving in search of lower interest rates, the burden on managers is bound to increase.

However, companies are not unilaterally abandoning the private debt market. Recently, there have been a growing number of cases where companies that initially sought to secure syndicated loans have returned to the private debt market. A prime example is the U.S. healthcare services company Sound Physicians, which in June sought to secure a syndicated loan of approximately $960 million led by Barclays but withdrew the plan after facing difficulties in attracting investors. Subsequently, the company shifted its focus to a private loan involving Monarch and PGIM, among others, and recently completed a refinancing of approximately $1.05 billion. While the interest rate is slightly higher than that of the originally planned syndicated loan, analysts note that this was a decision prioritizing the securing of funds.

Mantech International, a U.S. defense and information technology company, also attempted to secure a syndicated loan of approximately $2 billion through JPMorgan, but abandoned the plan when its existing private lending institutions offered better terms and began renegotiating with them.

In the capital markets, analysts suggest that as the syndicated loan market recovers, companies’ funding methods will become even more diverse. It is explained that while companies seeking to reduce their interest burden are turning to syndicated loans, those prioritizing the certainty of funding or flexibility in loan terms may opt for private lending. Simply put, rather than a one-sided relationship where one market “steals” borrowers from the other, the landscape is shifting toward a scenario where choices depend on each company’s specific circumstances.

Regarding this, a source in the global capital markets stated, “Just because the syndicated loan market has recovered doesn’t mean demand for private loans will disappear,” adding, “Companies for whom lowering interest rates is a priority will opt for syndicated loans, but those that need certainty in financing or room to adjust loan terms will seek private loans.”