Kennedys has launched a five-part mini-series examining the evolving dispute risks emerging in the private credit space, with contributions from eight lawyers across six offices: London, New Jersey, Wilmington, Bermuda, Hong Kong, Singapore and Paris. Robson Lee and Desmond Gan are the Singapore office contributors to the series.
Part 1 sets out an overview of why disputes in this asset class are likely to grow. Private credit, broadly defined as non-bank lending, has expanded sharply since the 2008 financial crisis as banks pulled back from middle-market lending under tighter capital requirements. Investors place capital into a private credit fund, which then lends to businesses — often middle-market borrowers with lower credit ratings willing to pay higher interest rates. Fund managers earn fees calculated as a percentage of the portfolio’s net asset value (NAV), and investor withdrawal rights are typically restricted by fund documentation.
The article identifies five current market pressures raising the probability of disputes: investors seeking to withdraw and funds “gating” redemptions; questions about due diligence at origination; questions about the valuation and ratings of loans held by funds; the prevalence of “covenant-light” loan documentation said to favour borrowers; and the limited regulatory perimeter applied to private credit.
Because private credit funds are established across many jurisdictions and governed by a range of laws — including US state law, English law, Bermudian law and European systems — the litigation risks they face have common features globally but interact with the specific governing law and the location of the parties. The mini-series draws on Kennedys’ offices to provide a multi-jurisdictional view.
The remaining four parts cover: (2) the entities involved and the structure of private credit funds; (3) disputes arising from investor complaints; (4) claims brought by the fund against service providers, borrowers or other lenders; and (5) claims by insolvency practitioners appointed to the borrowing company.
For participants who see a dispute risk on the horizon, the article recommends practical steps including preserving documentary evidence, considering whether recorded phone calls or messaging-app exchanges may be relevant, taking advice on limitation periods, and protecting the confidentiality of legal advice.