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Opinion CLOs
Maybe the only thing riskier than JPMorgan’s multifaceted private credit strategy is ignoring private credit entirely
by Lisa Lee
Lisa Lee
Managing editor
Creditflux
No other bank has been as expansive in its attempts to join this market
JPMorgan Chase is playing a multi-pronged offensive in its efforts to be part of the private credit boom. No other bank has been as expansive in its attempts to join this red-hot segment of the lending market, a risky bet that could pay off for Jamie Dimon’s outfit.
My Creditflux colleague Lisa Fu broke the news that JPMorgan’s asset management arm has started gathering capital from institutional investors for a direct lending fund. It would be the first fund for direct lending — typically, debt provided to private equity shops’ leveraged buyouts and their portfolio companies — since 2016.
Of course, JPMorgan wouldn’t be the only bank to have an asset management arm active in direct lending. Goldman Sachs has long been a titan in the private credit sphere by utilising its third-party capital fund — indeed, the US bank places among the big-league alternative asset managers in this space, such as Ares, Apollo, Blackstone and Blue Owl, which dominate direct lending. Other banks, such as Morgan Stanley, also play in private credit with a direct lending fund.
A type of lending created for insurers
What makes JPMorgan unique is that the bank has also been deploying its massive balance sheet to provide private credit loans. I previously penned a column in this space questioning the wisdom of upping its balance sheet allocation by USD 50bn for a type of lending that wasn’t created for banks, but rather, for insurance firms.
Risky or not, that increase in firepower, announced in February, has already made JPMorgan a private credit lender to contend with. Lisa Fu and I reported in April that JPMorgan entered the private credit big leagues with a USD 4bn unitranche — a type of debt that blends senior and subordinate debt — to back private equity shop Thoma Bravo’s buyout of Boeing’s Jeppesen navigation unit. Previously a mere pipsqueak among direct lenders, JPMorgan provided the third-largest chunk of the loan. It ranked behind only Apollo and Blackstone, which lent about a billion dollars each, and ahead of Golub Capital, KKR and Oak Hill Advisors — each took down around the same amount. They were followed by Ares, Blue Owl, Canadian institutional investor PSP, and Thoma Bravo’s credit platform.
But that’s not all. JPMorgan is angling to develop trading in private credit loans. Previously, I reported that JPMorgan even had a trader dedicated to direct lending loans — the private form of sub-investment grade leveraged loans — as the bank looked to systemically buy and sell the paper and help create a secondary market. While other banks such as Goldman Sachs had similar aspirations, JPMorgan was the furthest along. Bloomberg recently reported that JPMorgan is among the banks that are working with Apollo to trade investment-grade private credit.
Getting into all types of CLO
Loans aside, JPMorgan has also embraced the arranging of private credit CLOs. It is one of the premier investment banks for raising debt for corporate and private equity clients from the high-yield bond and leveraged loan markets. It’s also one of the top banks for helping asset managers buy leveraged loans and turn them into CLOs.
For most of the history of leveraged finance and CLOs — admittedly, it’s only been a handful of decades since Michael Milken and defunct investment bank Drexel Burnham Lambert taught the world the joys of leveraged debt — JPMorgan concentrated on arranging BSL CLOs.
These are the type of CLOs where asset managers purchase leveraged loans in the capital markets, structure them into CLOs and sell the bond to investors. But in the past few years, JPMorgan has set its eyes on arranging private credit CLOs — where private credit shops bundle their own loans into CLOs and sell the bonds to investors — and has risen in the league tables, according to Creditflux data. Indeed, when the race was on in Europe to price the region’s first private credit CLOs, JPMorgan was in the running to be the first bank to arrange that deal. In the end, BNP Paribas beat it to the punch, helped by leadership turmoil at its rival, which lost its three top CLO bankers toward the end of last year.
Finally, JPMorgan has forged a different path in the bank-asset manager partnership. Rather than have a sizeable counterparty, as in Citigroup’s tie-up with Apollo, the bank has a bevy of small asset managers that have committed to play in a number of JPMorgan-originated deals. I have opined that this gives JPMorgan greater control.
With all its various tentacles in credit, JPMorgan can seem like it is throwing darts at a wall. But while there is risk to that strategy, the biggest risk may be to do nothing at all.
