Happy Friday. Here’s what we’ve got today…

• A look at how private credit is managing increased competition

• Plus, KKR and CPPIB split up Axel Springer

Competitive credit:

Private credit market conditions are starting to shift as a crowded field of new entrants amplifies the typical end-of-cycle dynamics.

Speaking Thursday at the Milken Institute Asia Summit, Matthieu Boulanger, head of Europe at HPS Investment Partners, said there's been increased competition for smaller funds focused on lower middle market lending. "You've seen a lot of spread compression for the last few quarters."

HPS’ larger check sizes for upper middle market and large-cap opportunities, where there are fewer competing managers, have insulated it to some degree. The bigger threat for the firm is the public credit market, says Boulanger, noting that the illiquidity premium for private credit has compressed dramatically in recent years. "It was once as much as 350 basis points," Boulanger said. "Right now, it's more like 1 - 1.5 percent."

And, like Apollo, HPS is pushing deeper into corporate investment-grade credit. "Some of the attributes of the middle market private credit business that we know—certainty of executions, customization of terms, etc.—apply to this market as well," said Boulanger.

On the more competitive lower end of the market, there's growing pressure on managers to chase yield at the expense of credit quality.

"That's not to say that you are not attracted to more complex situations like complex credit, complex structure, complex story, but you need to be paid for it," said Boulanger.

"The unhappy middle is where you see one of these complex situations being priced like a regular financing. This is where you see differences between managers who have experience differentiating between the two."

Default risk is already a concern. Patrick Dennis, co-deputy managing partner of Davidson Kempner Capital Management, says true private credit default rates are now approaching 3 - 5 percent when taking into account covenant breaches and credit agreement modifications for struggling borrowers.

Many managers have chosen to avoid discount payment default and instead convert cash coupon to payment-in-kind or to extend payment terms. "What we would describe as kicking the can down the road a bit between borrower and lender," added Dennis.

Per Proskauer's Private Credit Default Index, which tracks conventional defaults and selective defaults (covenant breaches or amendments in anticipation of a default), the overall default rate for senior secured and unitranche loans rose to 2.71 percent in the second quarter, marking the third consecutive quarter of increases.

"From a severity perspective, I think this is the biggest risk in the market that we're trying to evaluate," said Dennis. "Over the next twelve months, we really do think defaults are kicking up. From our perspective we really do want to ensure there is some level of margin of safety of what we're underwriting to."

That may lead to a particularly challenging environment for those newer managers who may be starting out with less robust origination capabilities and a relative lack of workout expertise.

One bright spot for lenders is the growing opportunity in asset-backed finance, which, says Dennis, "is a market that has gone from esoteric to essential in LPs portfolios over the last 24 months." Part of the excitement is the strategy's attractive returns profile (both HPS and Davidson Kempner are targeting high single-digits to mid-double-digits), as well as from managers who feel their portfolio may now have too much exposure to middle market lending.

Within asset-backed finance, opportunities are broadly split between financial assets, such as mortgages and consumer debt, and hard assets, like aircraft or equipment leasing, real estate or infrastructure credit, and niches like intellectual property (e.g. music rights).

As with much of private credit’s growth, traditional banks have historically serviced the asset-backed finance market and have tried to hold onto it, but there's now a growing push from direct lenders to carve out their own foothold.

• Intel (Nasdaq: INTC) announced it has no plans to divest its majority stake in Mobileye Global (Nasdaq: MBLY), pushing back against earlier reports of a potential stake sale.

• Grant Thornton US, backed by New Mountain Capital, EQT, and Permira, have each advanced to the next round of bidding for Grant Thornton UK, which could be worth up to £1.5 billion, per the Financial Times.

• TDR Capital and I Squared Capital are preparing to sell Glasgow-based power solutions business Aggreko, which could be worth around $10 billion, per Bloomberg.

• Axel Springer, backed by KKR and CPPIB, plans to separate its media assets, including Politico and Business Insider, into a private company controlled by Mathias Döpfner and Friede Springer, while KKR and CPPIB will retain majority control of its classifieds business.

• Platinum Equity is in talks to acquire Trivium Packaging, a manufacturer of rigid metal packaging solutions, from Ontario Teachers' Pension Plan Board and Ardagh Group for more than $3.5 billion, per Bloomberg.

• Vista Equity Partners hired Evercore to lead the sale of Finastra's Treasury and Capital Markets business, which could be worth around $2 billion, per Bloomberg.

• Platinum Equity agreed to acquire a majority stake in F.lli Polli, an Italian producer of pasta condiments and vegetable preserves.

• Ampere Computing, whose backers include Oracle, is considering a potential sale of the business, which designs chips for cloud computing providers, per Bloomberg.

• Counsel Press, a portfolio company of Align Capital Partners, acquired Cockle Legal Briefs, Becker Gallagher, and Lantagne, providers of outsourced appellate services.

• RLDatix, backed by TA Associates and Nordic Capital, acquired SocialClimb, a Utah-based provider of patient satisfaction and healthcare reputation management solutions.

• New Heritage Capital acquired a majority stake in Brilliant, a California-based corporate gifting business.

• Playtika (Nasdaq: PLTK) agreed to acquire SuperPlay, an Israeli mobile gaming company, for $700 million upfront plus an earnout of up to $1.25 billion.

• Oaktree Capital Management agreed to acquire the wealth management unit of UK-based Close Brothers Group (LSE: CBG) for up to £200 million.

• Advent International is in exclusive talks to sell Idemia's European identity authentication business to IN Groupe.

• Rigaku, a Carlyle-backed maker of X-ray testing tools, is preparing for an October IPO in Tokyo with a target valuation of around $2.1 billion.

• Marcelo Claure acquired a 10 percent stake in City Football Group US, which owns New York City FC and its planned stadium in Queens, at a valuation of around $1.5 billion per Sportico.

• Stellex Capital Management acquired a majority stake in Fox Brothers, a UK-based provider of hauling, recycling, and related services to the construction industry, and will merge the business with JA Jackson, a quarry operator and concrete producer.

• EQT agreed to acquire IndoStar Home Finance, an affordable housing finance company with 130 branches across 9 Indian states, for $210 million from IndoStar Capital Finance Limited.

• CSI, backed by TA Associates, acquired Velocity Solutions, a provider of deposit management and overdraft software for financial institutions, from H.I.G. Capital.

• Yingling Aviation, a portfolio company of AE Industrial Partners, acquired Bevan Aviation, a Wichita-based provider of avionics repair, installation, and aircraft maintenance services.

• RF Investment Partners, Aquimont Capital, and Miramar Equity Partners invested in Altro and Amici Pharmaceuticals, producers of animal health generic pharmaceuticals.

• Orchestra, a portfolio company of O2 Investment Partners, acquired Civitas Public Affairs Group, a public affairs firm.

• Kingswood Capital Management agreed to acquire Kichler Lighting, a provider of decorative residential and light commercial lighting products, for $125 million from Masco Corporation (NYSE: MAS) and will merge it with portfolio company Progress Lighting.

• MedeAnalytics, a portfolio company of JLL Partners, acquired SubPop Health, a marketplace for self-insured employers.

• Viavi Solutions is considering a renewed bid for Spirent Communications, a telecoms testing group, if rival Keysight Technologies' $1.5 billion takeover offer fails to secure regulatory approval, per Reuters.

Tech, Vertical SaaS, & Misc. Enterprise

• In what would be the largest-ever venture round, OpenAI is expected to raise $6.5 billion in new funding at a $150 billion valuation, per Bloomberg. Thrive Capital has already provided $1 billion in recent weeks, and other potential backers include Apple, Nvidia, Microsoft, Tiger Global, and United Arab Emirates-backed fund MGX.

• Virtuous, a Phoenix-based CRM for nonprofits, raised $100 million in Series C funding led by Susquehanna Growth Equity.

• Cayena, a Brazilian B2B marketplace for food procurement, raised $55 million in Series B funding led by Bicycle Capital, with participation from Picus Capital, FEMSA Ventures, Astella, Globo Ventures, Endeavor Catalyst, Canary, FJ Labs, Clocktower, and Norte Ventures.

• Picus Security, a security validation startup, raised $45 million in Series C funding led by Riverwood Capital, with participation from Earlybird Digital East Fund.

• Datamaran, an ESG risk management platform, raised $33 million in Series C funding led by Morgan Stanley Expansion Capital.

• Ephos, a developer of glass-based quantum photonic chips, raised $8.5 million in seed funding from Starlight Ventures.

Fintech

• The Open Network, a blockchain platform for Telegram, raised $30 million in new funding from Bitget and Foresight Ventures.

• Yonder, a UK-based rewards credit card startup, raised £23.4 million in new funding co-led by Repeat and RTP Global, with participation from Latitude.

• Yellow Network, a decentralized clearing network for digital assets, raised $10 million in seed funding led by Ripple co-founder Chris Larsen, with participation from Consensys, GSR, and Moonrock Capital.

• TrueX, a non-custodial, stablecoin-native cryptocurrency exchange, raised $9 million in seed funding from RRE Ventures, Reciprocal Ventures, Paxos, Accomplice Blockchain, Hack VC, Solana Foundation, and Aptos.

Consumer & Media

• Physics Wallah, an Indian edtech startup, raised $210 million in Series B funding led by Hornbill Capital, with participation from Lightspeed Venture Partners, GSV, and WestBridge.

• Rebelstork, a baby-focused recommerce marketplace, raised $18 million in Series A funding led by Maveron, with participation from Serena Ventures, Marcy Venture Partners, and Golden Ventures.

• With, a Tel Aviv-based community events platform, raised $10 million in seed funding from Tal Ventures, Iron Nation, and Unicorn Technologies.

Healthcare

• Alan, a French health insurance startup, raised €173 million in Series F funding led by Belfius, with participation from Teachers' Venture Growth, Temasek, Coatue, and Lakestar.

• GC Therapeutics, a cell therapy startup developing iPSC-based therapeutics, raised $65 million in Series A funding led by Cormorant Asset Management, with participation from Mubadala Capital, Andreessen Horowitz Bio + Health, Medical Excellence Capital, Cercano Management, and Pear VC.

• Mevo, a Brazilian digital prescription platform, raised $19 million in Series B funding led by Matrix, with participation from Jefferson River Capital, Floating Point, and IKJ Capital.

• Ferrum Health, an enterprise AI deployment platform for healthcare systems, raised $16 million in Series A funding led by Foundry, with participation from Catalyst by Wellstar, Headwaters Ventures, UnitedHealthcare Accelerator, Blumberg Capital, Cercano, GSR, Urban Innovation Fund, and Singtel Innov8.

Industrials, Greentech, & Other

• Air Company, a carbon conversion startup, raised $69 million in Series B funding led by Avfuel, with participation from Lowercarbon Capital, IQT, Alaska Airlines, Connecticut Innovation's Climate Tech Fund, Carbon Direct Capital, JetBlue Ventures, and Toyota Ventures.

• DeepDrive, a developer of dual-rotor electric motors for EVs, raised €30 million in Series B funding led by Leitmotif, with participation from BMW i Ventures, co-pace, UVC Partners, and Bayern Kapital.

• LiquidStack, a provider of liquid cooling for data centers, raised $20 million in Series B extension funding from Tiger Global, bringing its total Series B round to $35 million.

• Inbolt, a developer of robot guidance solutions, raised €15 million in Series A funding led by Exor Ventures, with participation from MIG Capital, SOSV, BNP Paribas Développement, and Bpifrance.

• Phlair, a German direct air capture startup, raised €14.5 million in seed funding led by Extantia Capital, with participation from Planet A, Verve Ventures, Atlantic Labs, Counteract, and UnternehmerTUM Funding for Innovators.

• ICG raised $1.9 billion for its third North American middle market credit fund.

• New Catalyst Strategic Partners is raising up to $750 million for its emerging manager fund-of-funds strategy, per the Wall Street Journal.

• Costanoa Ventures raised $394 million across two new funds: a $275 million fifth early-stage fund and a $119 million third opportunities fund for later-stage investments in portfolio companies.

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