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Hey everyone!

I recently dug into some research on private credit’s growing role in the healthcare sector—specifically, why it’s gaining traction, where the risks lie, and what lenders should keep an eye on. After reviewing a handful of insightful articles (which I’ll link below), here’s what stood out to me.

Why Private Credit is Stepping Into Healthcare

Two big themes emerged:

1. Banks are pulling back due to tighter regulations, leaving a gap that non-bank lenders (i.e., private credit) are filling.
2. Private equity (PE) is slowing down in healthcare, creating room for private credit to take its place.

PE’s retreat isn’t random—it’s driven by declining internal rates of return (IRRs dropped from 15.4% in 2011-2015 to 12.9% in 2016-2020). Why? Higher competition, inflated valuations, and fewer exit options. With PE more cautious, private credit is stepping in as a key funding alternative.

But healthcare isn’t without risks.

Challenges for Private Lenders

While healthcare is traditionally seen as recession-resistant, lenders still need to tread carefully:

• Higher default risks: If PE-backed companies struggle to grow or cut costs, they may miss debt obligations.
• Policy sensitivity: Healthcare is tightly linked to government programs (Medicare, Medicaid), so reimbursement changes or regulations can impact borrowers.
• Economic and tech disruptions: Shifts in tech or patient demand can quickly alter a provider’s financial health.

Lenders need rigorous due diligence, sector-specific risk assessment, and close monitoring of regulatory trends.

Where the Opportunities Lie

Despite the risks, there’s real potential:

• Distressed debt and rescue financing: Struggling companies may offer favorable terms for lenders who can provide urgent capital.
• Tech-enabled healthcare: Think MedTech, life sciences, and healthcare software. Europe’s MedTech market alone is worth $160B (26% of the global share), and tech-driven healthcare revenue is projected to grow 50%+ in the next five years.
• UK/Europe as a hotspot: With banks retreating from non-investment-grade lending, private credit is thriving—especially in the UK, where liquidity constraints are pushing borrowers toward alternative lenders.

Key Takeaways

1. Private credit is filling the void left by banks and PE, especially in healthcare.
2. Tech-focused subsectors (MedTech, software, life sciences) are attracting the most interest.
3. Europe is a promising market due to bank pullbacks and growing demand for flexible capital.
4. Risk remains: Lenders must prioritize due diligence and stay alert to policy shifts.

References

• 9fin (2023) MedTech lending on the rise as sector tailwinds attract private credit. Available at: https://9fin.com/insights/medtech-lending-private-credit (Accessed: 21 March 2025).
• Bat, R. (2023) Healthcare private equity slowdown puts private credit on alert, Martini.ai. Available at: https://blog.martini.ai/healthcare-private-equity-slowdown-puts-private-credit-on-alert/ (Accessed: 21 March 2025).
• Private Debt Investor (2023) Tech and healthcare are back. Available at: https://www.privatedebtinvestor.com/tech-and-healthcare-are-back/ (Accessed: 21 March 2025).
• CNBC (2023) Interview with Simon Drakesmith on European private credit [Video]. Available at: https://www.youtube.com/watch?v=DQyesx28c8o (Accessed: 21 March 2025).
• Lavdon, J. (2022) Healthcare’s interest in private credit, other funding sources grows, TechTarget. Available at: https://www.techtarget.com/revcyclemanagement/answer/Healthcares-Interest-in-Private-Credit-Other-Funding-Sources-Grows (Accessed: 21 March 2025).
• Private Debt Investor (2023) Financing healthcare deals: Trends, challenges and opportunities. Available at: https://www.privatedebtinvestor.com/financing-healthcare-deals-trends-challenges-and-opportunities/ (Accessed: 21 March 2025).