The Bank for International Settlements published a working paper analysing collateralised lending in the US private credit direct lending market. Using loan-level data from 2000Q1 to 2024Q4, it finds that secured direct loans have expanded faster than unsecured loans and now account for more than half of outstanding direct lending. The paper links collateral use to informational frictions between lenders and borrowers: loans are less likely to be secured when lenders are more specialised in the borrower’s industry or metropolitan statistical area, and more likely when the geographic distance between lender and borrower is greater. Comparing firms within the same metropolitan statistical area and industry, secured loans have lower amounts, higher spreads, and longer maturities than unsecured loans. An instrumental-variable approach using cross-sectional variation in house prices across metropolitan statistical areas provides evidence of a real estate collateral channel: a one standard deviation increase in local house prices is associated with an insignificant 10.7% increase in unsecured lending but an additional 21% increase in secured lending. The paper also documents a shift in deal structure and bank participation: club deals have increased for both secured and unsecured segments and represent about 40% of deals by late 2024, while revolver loans have become more prevalent. Club deals that include at least one bank are substantially more likely to feature revolvers, consistent with banks increasingly participating alongside private credit lenders.
Bank for International Settlements 2025-05-01
Bank for International Settlements working paper finds secured direct lending now exceeds unsecured in US private credit
The Bank for International Settlements released a working paper on US private credit direct lending, noting secured loans now dominate the market, growing faster than unsecured loans. Secured loans are more common when lenders are less familiar with borrowers' industries or are geographically distant, typically featuring lower amounts, higher spreads, and longer maturities. The paper also highlights a rise in club deals and revolver loans, with banks increasingly participating alongside private credit lenders.