The advantages of investing in EM private credit

EM private credit offers stronger structural protection and a broader opportunity set than developed-market private credit when investors apply detailed local research.

• Emerging-market corporates obtain 80-90% of their funding from banks, compared with roughly 20-40% for medium-to-large US corporates, reflecting less developed debt capital markets.
• RBC BlueBay's portfolio has no software or AI exposure and focuses on infrastructure, utilities, industrials, oil and gas, and TMT; about 70% of loans are senior secured, 27% senior unsecured, and 4% junior or second lien.
• Borrowers average about 3x net leverage, compared with roughly 5x for senior direct lending in developed markets and up to 7x for junior or mezzanine lending, while the loans have an average life of three years and are mostly amortising.
• Lower leverage has allowed borrowers to keep paying cash interest during periods of rising base rates, whereas some developed-market borrowers switched to payment-in-kind terms; repayments mainly come from borrower cash flows rather than refinancing or a new buyer.
• Opportunities vary by market: Latin America offers commodity-linked financing such as Brazil's lithium mining, while China is difficult to access and India is highly competitive, requiring substantial local expertise.
• The authors argue that legal and information risks are manageable in larger emerging markets, citing Brazil's Chapter 11 equivalent, court-recognised super-senior debtor financing, and corporate borrowers that accept higher disclosure standards when seeking international funding.

Takeaway: Investors may find better downside protection and less crowded lending opportunities in emerging markets, provided they commit sufficient local and global resources to sourcing, diligence, and legal analysis.