While private credit is growing in popularity with both investors and issuers, banks are seen to be struggling with the new order. While arguing for more non-bank regulation to Congress and federal agencies, they are busy trying to start their own direct lending businesses or partnering with established firms.

Given the challenges of holding leveraged loans on their balance sheets, some banks are shifting their strategies to less leveraged, more amortizing so-called pro rata, term loan A offerings. This hearkens back to the 1970s and 1980s before the institutionalization of loans and the crafting of non-amortizing, term loan Bs for CLO, retail, and insurance buyers.

One example is a top US money-center bank focusing its direct lending efforts on middle market non-sponsored borrowers. Debt-to-Ebitda is kept below 4x (under regulators’ radar), and with spreads at least 1% lower than market for LBO financings. These companies are found in manufacturing and industrials as well as service sectors.