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Private credit is more flexible, but more costly way to

borrow

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PIMCO's Dhawan cites better lender protection terms

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Firm's lending already approaching level seen in whole of

2024

By Yoruk Bahceli

LONDON, April 2 (Reuters) - Bond giant PIMCO has

privately lent nearly $6 billion to emerging market borrowers,

mostly governments, this year alone, securing higher returns and

better lender protections, its head of emerging markets

portfolio management said on Wednesday.

That is already nearing the roughly $8.5 billion PIMCO lent

last year in 27 deals, Pramol Dhawan told Reuters, out of a

total of around $25 billion it has provided in recent years.

For emerging markets wary of being caught out by

unfavourable changes in broader sentiment, private credit -

which is also booming in developed economies - is seen as a more

flexible but also less visible way to borrow.

Countries PIMCO has lent to include Panama, the Dominican

Republic, Saudi Arabia and Qatar, Dhawan said on the sidelines

of a conference in London.

The asset manager lends through loans or private bonds as

well as trades where PIMCO buys existing public bonds at a

discounted price that is not disclosed, Dhawan said.

The firm prefers lending to borrowers with low

investment-grade or high sub-investment grade ratings, he added.

"We've got both inflows as an asset manager, and we have a

large private credit team. We can leverage those two together,

find bespoke solutions," Dhawan said.

He said PIMCO could secure a 150 basis-point pick up

relative to public investment-grade bonds from the same

borrowers, while for the high-quality end of the high-yield

market, that can reach as high as 300 bps.

The other advantage of the off-market deals is that PIMCO

can write its own lender protection terms known as covenants,

which offer it more protection than those on public deals.

Emerging market governments were choosing to pay up for the

private debt to secure optionality, particularly following the

experience of the COVID-19 pandemic where some emerging markets,

especially smaller, riskier frontier markets, were locked out of

capital markets, Dhawan said.

Some issuers also do not want to mark down their Eurobonds

with a public debt sale, he added.

Giving the examples of Panama and Egypt, Dhawan said the

higher-cost private credit extension was a very small share of

their debt stack, however, at around 3%.

Demand to lend to investment-grade governments in this way

was coming predominantly from insurers, Dhawan added.

"Pretty much every U.S. insurance company that we pitch this

to is like: sure. Why not?," he said, as they grow worried about

U.S. equity market volatility.