Private credit has moved from niche to mainstream. What began as sponsor-backed direct lending has evolved into a global market spanning investment-grade loans, infrastructure financing, securitizations and asset-based lending. The INSOL London 2026 panel on this topic highlighted the scale of this transformation, while our own Restructuring Conference underscored the implications for lenders navigating stress.
The unifying theme across both conversations is clear: structuring for protection. As private credit grows, so does the need for lenders to anticipate stress, enforce discipline and preserve value through robust deal architecture. And importantly, structuring for protection is not only about what happens when things go wrong. It begins at the front end of due diligence, where lenders can add real value before capital is deployed.
From Banks to Institutions
The rise of private credit reflects a structural shift in global finance. Traditional banks, constrained by regulation and shrinking balance sheets, have ceded ground to institutional investors, insurers and retail channels. This migration has changed the way capital flows into businesses. Borrowers increasingly seek private credit because it offers speed, certainty of execution, confidentiality and bespoke structuring. Sponsors pursuing buy-and-build strategies prefer committed financing insulated from volatile public markets.
Yet these same features can erode discipline. Speed and flexibility often mean compressed diligence timelines. Confidentiality can limit transparency. Bespoke terms can create uneven protections across creditor groups. A warning sign here is that increased competition for allocations has weakened documentation standards, leaving lenders exposed when stress emerges.
This shift from banks to institutions also changes the balance of responsibility. Banks historically carried the infrastructure for diligence, monitoring and enforcement. As private credit managers take on that role, they must build the same capabilities. That means investing in back-office systems, legal expertise and sector-specific analysis. It also means recognizing that institutional investors, whether insurers or retail channels, expect not only returns but also resilience. Structuring for protection is therefore not a defensive measure but a proactive way to demonstrate credibility and safeguard investor confidence.
Underwriting Standards Under Strain
Another recurring theme was underwriting discipline. The rapid growth of private credit has attracted new entrants, some of them under-resourced and ill-equipped to manage stress. Fraud cases were described as idiosyncratic, yet they reveal gaps in due diligence and bandwidth constraints.
The industry has not yet faced a true recessionary stress test in this cycle. With interest rates higher and geopolitical shocks mounting, lenders must prepare for defaults not as isolated events but as systemic features of the next downturn. The message is clear: underwriting standards must be reinforced, not diluted, as competition intensifies.
Structuring for Protection: A Kroll Perspective
Against this backdrop, our Restructuring Conference discussion converged with the INSOL panel on a single imperative: structuring for protection. Front-end diligence adds value early. Verifying paperwork, receivables and governance structures ensure lenders are not blindsided later. Anticipating risks in industries vulnerable to disruption allows lenders to price risk appropriately. Mapping enforcement pathways across jurisdictions at the outset avoids scrambling under pressure. By embedding discipline at origination, lenders can prevent problems rather than merely reacting to them.
Three principles stand out:
-
Control
Enhanced governance rights, board observers and carefully negotiated covenant packages allow lenders to stay close to the business and act decisively when warning signs appear. -
Early Intervention
Private credit managers must be willing to step in before defaults crystallize. Business reviews, CRO appointments and interim management are tools to preserve value. Waiting too long risks erosion and leaves lenders reacting rather than shaping outcomes. -
Optionality
Structuring deals with flexibility ensures lenders to adapt to different scenarios. Share pledges, hybrid instruments and cross-border enforcement strategies provide pathways from consensual restructurings to full debt-for-equity conversions.
Cross-Border Enforcement
One area of particular concern is cross-border enforcement. Many deals have been structured without sufficient thought to jurisdictional complexities, leaving lenders exposed when recovery actions are required. It is essential to anticipate enforcement pathways at the outset rather than scrambling under pressure.
For lenders, this means structuring must integrate legal foresight with commercial discipline, ensuring that protections are enforceable across jurisdictions. Cross-border enforcement is not a technical afterthought. It is a central element of structuring for protection.
Preparing for the Next Cycle
Private credit is not a new invention. It is lending, migrated from banks to investors. Its growth is reshaping global finance, offering speed and flexibility but demanding discipline and foresight. The INSOL panel and our Restructuring Conference both underscored the same message: structuring for protection is the cornerstone of resilience.
As defaults rise and sectoral shocks unfold, lenders cannot rely on permissive documents or sponsor goodwill. They must embed control, intervene early and preserve optionality. Above all, they must anticipate enforcement challenges before stress crystallizes.
