Private Credit: Transforming Commercial Law and Business Practices

Private credit has rapidly emerged as a cornerstone of modern corporate finance, challenging traditional banking models and reshaping the global business landscape. As this sector grows, its influence on commercial law and business practices deepens, making it a critical topic for aspiring lawyers to understand. With training contract interviews increasingly assessing commercial awareness, a grasp of private credit’s role in the financial ecosystem can provide candidates with a competitive edge.

What Is Private Credit?

Private credit involves loans issued directly by non-bank lenders to companies, bypassing public markets. This type of financing, often senior secured and offering floating rate coupons, appeals to companies looking for speed, confidentiality, and flexibility in structuring their debt. The market’s appeal is underscored by its rapid growth—assets under management are expected to reach $2.8 trillion by 2028​.

Private credit gained traction following the 2008 financial crisis, as regulatory constraints reduced banks’ lending capacities. Today, it constitutes over 25% of the U.S. below-investment-grade credit market, up from just 5% in the mid-2000s. Its rise signals a broader shift towards more bespoke, private solutions in corporate finance​​.

Why Should Aspiring Lawyers Care?

Understanding private credit is crucial for students aiming to demonstrate commercial awareness in interviews, particularly for roles in corporate law, banking and finance, or restructuring. It intersects with key areas of commercial law, including insolvency, contract negotiation, and creditor rights. Interviewers may explore how candidates relate legal principles to the evolving financial landscape, making private credit a prime topic for discussion.

Implications for Commercial Law

Private credit transactions are typically highly customised, requiring tailored legal documentation. This presents opportunities and challenges for lawyers, as the bespoke nature of agreements must align with diverse legal and regulatory frameworks.

Recent cases highlight the evolving legal landscape surrounding private credit. For instance, the UK Supreme Court in BTI 2014 v Sequana SA and the Singapore Court of Appeal in Foo Kian Beng v OP3 International reinforced the shift in directors’ duties from shareholders to creditors during insolvency. These rulings emphasise the need for robust legal advice to navigate complex creditor-stakeholder relationships​.

Private credit also influences restructuring practices. Liability management transactions, such as "uptier" or "drop-down" strategies, illustrate the legal ingenuity often required in private credit. However, these innovative approaches have led to legal disputes, including notable cases like Robertshaw and Wesco Aircraft. These cases underscore the importance of well-drafted agreements and highlight the potential for litigation in high-stakes financial restructurings​.

Impact on the Business Environment

From a commercial perspective, private credit reshapes how businesses approach funding. Companies value its flexibility, as it allows them to tailor financing solutions to meet specific needs without the public disclosure requirements associated with traditional loans. This ability to act quickly and confidentially makes private credit particularly attractive in volatile markets​.

For investors, private credit offers diversification and defensive income opportunities. Its structure, often tied to floating rates, allows lenders to benefit in rising interest rate environments. This positions private credit as an attractive asset class within broader investment portfolios​.

Key Takeaways for Students

1. Stay Informed on Legal Developments: Familiarise yourself with recent cases like Sequana and Foo Kian Beng, which shape how creditors’ rights are enforced during financial distress.

   
   

2. Understand the Appeal of Private Credit: Recognise why companies and investors are drawn to private credit, including confidentiality, bespoke structuring, and enhanced returns.

   
   

3. Explore Practical Applications: Be prepared to discuss how private credit influences legal practice areas like restructuring, corporate governance, and financial regulation.

   
   

4. Anticipate Future Trends: Think critically about the challenges facing private credit, such as regulatory scrutiny, illiquidity, and its role during economic downturns. Interviewers often appreciate forward-thinking insights.

   
   

Final Thoughts

Private credit exemplifies the dynamic interplay between finance and law. For students preparing for training contract interviews, understanding this sector can showcase commercial awareness, analytical skills, and a genuine interest in the evolving legal landscape. By connecting these insights to the broader business environment, candidates can position themselves as informed, adaptable future lawyers.