Private Credit After the 2023 Regional Banking Stress: Market Structure and Valuation Implications

What March 2023 actually changed

The failures of Silicon Valley Bank and Signature Bank in March 2023, followed by the receivership and JPMorgan-led acquisition of First Republic on 1 May 2023, were not, at the time, understood primarily as a private credit story. In hindsight they were a turning point for the asset class. The retreat of regional bank lending from mid-market corporate finance, commercial real estate debt, and asset-based finance created a structural origination opportunity that private credit managers moved to capture through 2023 and into 2024.

Preqin, BlackRock and Apollo all put private credit AUM at or above $1.7 trillion by the end of 2024, with Apollo and others projecting the asset class to exceed $2.5 trillion by 2028. Estimates vary materially by definition; Preqin, PitchBook and the FSB use different perimeters. The growth rate is striking, but more striking is the change in composition: direct lending remains the largest segment, but asset-based finance, commercial real estate debt, and speciality finance have all grown faster from a smaller base.

Spread dynamics through the cycle

Unitranche spreads traced a recognisable cycle through 2023 and 2024. The immediate post-SVB period saw unitranche spreads widen to L+650–L+725 (pre-cessation LIBOR convention) for middle-market sponsor-backed issuers, as BSL competition retreated and risk premia widened. Through the back half of 2023 and into 2024, as the BSL market reopened and competition among direct lenders intensified, spreads compressed back to S+500–S+575 for high-quality sponsors.

Into 2025, as the Federal Reserve's path of rate cuts crystallised and risk appetite broadened, spreads compressed further at the top of the quality distribution while widening materially for lower-quality credits — producing a dispersion in marks that has not been seen since 2016. This dispersion is where valuation infrastructure is most visibly tested.

The rise of asset-based finance

Asset-based finance — receivables, equipment, royalties, consumer loan portfolios, and specialty finance — is the fastest-growing sub-segment within private credit. The driver is straightforward: regional and community banks historically provided much of this financing, and their retreat created a direct origination opportunity for private capital.

ABF is not directly comparable to direct lending from a valuation perspective. The cashflows are typically more granular and more statistically amenable to modelling, the collateral is more tangible, and the credit performance is often driven by pool-level rather than single-obligor dynamics. Managers that built their valuation infrastructure around corporate direct lending have had to extend it materially to handle ABF correctly.

• Receivables financing — driven by trade receivables concentration and obligor credit
• Equipment finance — residual value and remarketing drive LGD
• Royalty-backed debt — intellectual property or music catalogue cashflows
• Consumer loan pools — requires statistical PD / LGD at pool level
• Speciality finance — fund finance, NAV lending, GP stakes debt

Default and recovery experience so far

PitchBook LCD data through 2024 and into early 2026 suggest that private credit default rates have run approximately 200–300bps above the BSL default rate on a comparable obligor basis. Whether this is a secular feature of the private credit opportunity set — reflecting somewhat weaker median credit quality — or a vintage artefact of the 2020–2022 origination cohort is still genuinely debated. Rating agency published studies have been cautious on this point.

The recovery picture is more decisively in favour of private credit. Direct lending workouts, particularly in sponsor-backed positions, have tended to converge faster than BSL workouts, with smaller lender groups and more aligned interests. Observed first-lien recoveries in the private credit universe have tracked at or above the equivalent BSL distribution, though the sample remains thin enough that conclusions are tentative.

Bank-private credit partnerships

A structural feature of the post-2023 market has been the emergence of origination partnerships between banks and private credit managers. The announced partnerships between Apollo and Citi, Blackstone and Wells Fargo, and a number of regional-bank-adjacent arrangements, are all variants of the same model: the bank originates, screens, and retains a relationship with the borrower; the private credit manager holds the loan; the bank receives an origination fee and frequently a share of ongoing economics.

These partnerships effectively resolve the regulatory capital problem that banks have with direct mid-market lending under the current capital framework. From a valuation perspective, they introduce new questions about where the economics actually sit, how the origination fee is treated at Day 1 under IFRS 13, and how the ongoing relationship economics feed into fair value over the life of the instrument.

Implications for valuation infrastructure

Three implications for valuation infrastructure stand out. First, the widening dispersion in marks means that a uniform house-view spread curve is increasingly inadequate; issuer-level calibration is table stakes. Second, the extension of the asset class into ABF requires valuation infrastructure that handles pool-level as well as obligor-level cashflows — the two are modelled differently, priced differently, and audited differently. Third, the growing partnership ecosystem between banks and private credit managers means that valuation documentation increasingly needs to evidence the origination and economics trail, not merely the post-origination mark.

The platforms that will serve this market over the next five years are not the ones that were adequate for the $1T market of 2021. They are the ones that treat valuation as a systematic, reproducible, versioned, and auditable discipline — and that scale with the growing complexity of the opportunity set rather than breaking under it.