What began guardedly, as traditional lenders retreated post-Lehman, has exploded into a financial-industrial complex rapidly approaching $1 trillion, with money streaming in from pension funds, insurers and hedge funds. It’s part of a decade-long borrowing spree that has swelled the world’s supply of credit to private businesses to 98 percent of gross domestic product. But instead of big corporations, this lending boom is filtering down to small-town or regional businesses looking to cash in as money managers and private equity firms fan out across the country.
Amid the furor, Selleck has found his play: a sort of Tinder for corporate credit. In barely two years, more than 470 different potential lenders have signed up to his match-making web site, DebtMaven. For a small fee, he connects them with smaller companies looking for money.
Even the financial engineers are getting to work. So far this year, Wall Street has churned out almost $20 billion of collateralized loan obligations that transform those often risky loans into securities rated as high as triple-A.
He says lenders on his site might eventually embrace a “swipe right” strategy a la Tinder. DebtMaven went live in mid-2017 and made its first match in August, between a female-run private equity firm in Chicago that was looking and Avidbank, a specialized lender in San Jose, in a deal that cut costs, work and time, says Selleck.
So why is private credit so beguiling? One word: yield. A decade of central bank stimulus caused it to evaporate in the usual places, such as the debt of blue-chip corporations. If everything goes according to plan, loans from private lenders are usually more lucrative than those to bigger companies. They hold out all-in yields of 7 percent to 9 percent, sometimes much more. That compares to an average 4.3 percent for the typical investment-grade corporate bond.