COVID-19 and the Private Debt Markets

Benefit Street Partners details the historic magnitude of dislocation in private credit markets due to COVID-19 and the potential opportunity set going forward.


There is no doubt that news surrounding COVID-19 and the fascinating volatility in the publicly traded markets due to this global pandemic have captivated nearly everyone’s attention in recent months. The private credit markets, which tend to be less thoroughly discussed, are similarly dealing with unprecedented dynamics. Over the past few weeks, we have engaged our partners—in a “socially distanced” manner—with hundreds of calls into our portfolio companies, private equity sponsors, banks, law firms and industry experts—as well as our own investors. This paper will detail the historic magnitude of the dislocation, provide a summary of discussions and key observations that we have shared with those partners, and share our view on what might be in store for the future of private credit. While we are steadfastly protecting our existing investments, we are also enthusiastic about the potential opportunities that have been created for well-capitalized private debt managers.

Key Takeaways

  • COVID-19 has created investing opportunities that we have not seen in over a decade.
  • While policy responses in the United States have been adopted relatively quickly, economic uncertainty will likely persist well into 2021.
  • BSP’s thorough underwriting and adaptive portfolio and risk-management practices have resulted in relatively solid performance across portfolios as we performed detailed analyses of COVID-19 on each of our portfolio companies.


All investments involve risks, including possible loss of principal. Stocks tend to fluctuate dramatically over the short term. Bond prices generally move in the opposite direction of interest rates. Changes in the financial strength of a bond issuer or in abond’s credit rating may affect its value. Investing in private companies involves a number of significant risks, including that they: may have limited financial resources and may be unable to meet their obligations under their debt securities, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of realizing any guarantees that may have obtained in connection with the investment; have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as generaleconomic downturns; are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on the portfolio company and, in turn, on the investment; generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.

Views expressed are those of Franklin Templeton and BSP. The information provided herein is provided for informational purposes only and is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle (each, a “Fund”) managed by Franklin Templeton or BSP. A private offering of interests in a Fund will only be made pursuant to such Fund’s offering documents (the “Offering Documents”), which will be furnished to qualified investors on a confidential basis at their request for their consideration in connection with such offering. Investorsshould have the financial ability and willingness to accept the risk characteristics of a Fund’s investments.