Navigating Exclusivity in Private Credit Transactions: A Deep Dive into Protecting Lenders in the European Market

Private credit lenders in Europe are facing a new challenge as the syndicated markets for leveraged credit make a strong comeback. With the possibility of refinancing private credit borrowings with cheaper debt in the public markets, lenders are looking for ways to protect themselves in case deals fall through.

Exclusivity clauses are one option for lenders to consider, ensuring that they are the sole provider of financing for a specific transaction. However, these clauses must be carefully drafted to address beneficiaries, the type of financing, the transaction scope, commencement and termination dates.

For lenders who prefer not to include exclusivity clauses, “soft comfort” in the form of verbal assurances from sponsors may be an alternative. Economic disincentives, such as deal away fees, can also provide compensation to lenders if a deal is closed with alternative financing.

As the private credit market remains relationship-driven, the approach to protecting lenders may vary depending on the parties involved and the commercial backdrop. With the competitive tension in the leveraged finance market reigniting, private credit lenders will need to focus on executing transactions effectively to stay ahead in the market.