U.S. Private Credit Exposure Rising in Sectors with Stretched Valuations
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Direct lenders’ preference for non-cyclical, stable recurring cash flows has increased their exposure to corporate sectors with higher EV/EBITDA multiples, which could exacerbate credit risks in a market downturn. Private equity sponsors are more likely to walk away from a struggling company when equity cushions shrink, while a potential reset in valuation multiples will negatively affect creditor recovery prospects in case of distress.
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