In PNC’s Inside the Minds of CFOs survey, there was one trend that emerged consistently and clearly in the results: CFOs’ interest in private capital is on the rise.
Among CFOs with a loan or bond maturing in the next 12 months, many said they would refinance with their existing bank (41%). But nearly a third of respondents (27%) indicated they would raise capital from private equity, non-bank lenders, or private investors.
What may account for the bullishness toward pursuing private capital? It largely stems from the constraints of operating in an elevated interest rate environment, according to Pete Mardaga, head of PNC Business Credit. “It stands to reason that many CFOs would be interested in turning to private credit, given the macroeconomic backdrop of recent months. There are certainly some benefits associated with going with a traditional bank, but in the current credit and rate environment, companies may be looking for terms that are more flexible than those of a traditional loan. Private credit may be able to provide options to meet specific needs of certain borrowers.”
As interest in flexible debt grows among borrowers in the marketplace, options for access to private capital are increasing. In May of 2024, PNC announced its partnership with the TCW Group, a leading global asset manager, to deliver private credit solutions to middle market companies. The joint strategy focuses primarily on directly originated, senior secured cash-flow and asset-based loans to sponsored and non-sponsored middle market companies. “As private debt becomes a bigger part of the marketplace, there is still a role that traditional banks can step in to fill,” said Mardaga. “The goal of a partnership like the one between PNC and TCW is to help a critical segment of U.S. companies realize growth opportunities by providing flexibility in how the financing is structured.”
The increasing interest in pursuing corporate privatization was also clear in survey findings about company ownership. Among public company CFOs, 44% said it is extremely or very likely their companies will be taken private in the 12 months following a rate cut by the Federal Reserve. What’s more, only 19% of private company CFOs said it was extremely or very likely they would pursue an IPO in the 12 months after a rate decrease. This trend also has clear roots stemming from the larger macroeconomic setting and regulatory environment, according to Michael Thomas, head of Corporate and Institutional Banking for PNC.
“Part of the interest in private ownership may go back to the issue of flexibility, since private companies may be able to operate with more flexibility than public companies that are contending with shareholder scrutiny and greater regulatory burdens. But it’s also largely about valuation,” Thomas said. “The public environment tends to react sharply to macroeconomic trends, which affects valuations, whereas the private market may be willing to ride out some of the trends in order to achieve long-term value. When public markets are performing well and valuations are higher, public markets may be more attractive. But for companies who haven’t gotten valuation growth, operating in a private structure may be a better option for them.”
Survey Methodology
PNC Bank’s Inside the Minds of CFOs survey featured responses from more than 300 CFOs at U.S.-based companies. It was conducted by Bloomberg Media Studios immediately after the Fed meeting on June 12, 2024. The study included CFOs, ages 26+, employed full time as a CFO. Companies spanned 23 industries, with 61% of them having more than 1,000 employees and 31% with revenues of $1 billion or more. About 54% are publicly owned.
Brilliant Begins Here
PNC Business Credit is a leading provider of senior secured financing for mid-sized companies, large corporations, and private equity firms throughout the U.S., Canada, and the UK. For more than 25 years, we’ve been a trusted advisor for our clients, delivering creative financial solutions to help them grow and transform to meet their strategic business goals. Our lending capabilities span a variety of industries and look to support businesses as they maximize their access to capital for acquisitions, refinancings, recapitalizations and turnarounds. Learn more here.
