The income engine most investors aren’t talking about

While headlines continue to focus on rising yields, valuation concerns and looming recession risks, the US private credit market is quietly humming along. And according to Kelli Marti, Senior Managing Director and Senior Portfolio Manager at Churchill Asset Management by Nuveen, this moment presents a compelling opportunity.

“The US middle market for first lien senior secured loans is currently yielding in that 9-10% range, which is quite attractive and far in excess of the historical average,” Marti says. 

“Despite the movement in the market, we're still seeing from historical levels a nice premium for the asset class.”

In this conversation, Marti explains why the US private credit market remains healthy, how deal flow has rebounded in 2025, and why strong GP-LP relationships are critical to accessing the best transactions. 

She also outlines Churchill’s underwriting discipline, how floating rate structures benefit investors in a high-rate environment, and what happens when deals take longer to exit than expected.

Marti brings decades of experience to the table, including deep insight into core middle-market lending in the US, a niche that is relatively insulated from the competition banks are bringing to the upper middle market.

For Australian investors considering investing in private credit but looking for diversification beyond Australia-centric offerings, this conversation provides a timely window into a market segment that is delivering consistent yield without sacrificing underwriting standards.

Watch the interview above for the full experience, or read the summary below. 

INTERVIEW SUMMARY

Market health and default trends

Despite a noisy macro backdrop, Marti says the US private credit market remains robust.

“If we look at the trend in default rates… It’s actually trended down over time. Fourth quarter 2024 default rates would've been just a tick over 1%. 

We've seen that drop to only 90 basis points in the first quarter and only 70 basis points in the second quarter".

These default rates, Marti explains, are across the entire private credit landscape – and will vary by asset manager, yet indicate a “very benign default rate environment.”

Core middle market insulation

While competition is heating up, particularly with banks returning to the syndicated loan market, Churchill’s focus on the core middle market can offer protection from these dynamics.

“These borrowers are generating, on average, $50 million of EBITDA. There’s no public debt solution for a borrower of that size. So we are much more insulated from that competitive dynamic.”

Marti adds that banks still play a role in this segment, but more so on the liability side, issuing debt to support Churchill’s leveraged funds, not competing for deals.

Deal flow rebound in 2025

Marti splits 2025 into three phases: cautious optimism, a short tariff-induced pause, and strong resumption of activity.

“Post-April 2nd, with the tariff announcements… deals that had any sort of tariff impact were sidelined. 

But we've had a pretty robust resumption of deal activity as we head into the late second quarter, now into the third quarter.”

Looking ahead, she’s optimistic about a solid second half for new transactions.

Access via sponsor relationships

Churchill’s access to top-tier deal flow comes through long-established relationships with private equity sponsors.

“All of our transaction opportunities come directly from our private equity relationships… We are an LP in over 325 private equity funds today.”

This “unique competitive advantage” allows Churchill to be invited into tightly held transactions – an edge not easily replicated.

Marti emphasises that this access doesn’t happen overnight:

“To invest in a private equity fund as a limited partner, that's a decision that takes a lot of due diligence... You then build that second leg of that relationship where you're now a lender to that private equity sponsor.”

She sums it up succinctly: “The private credit market is a relationship-driven market… the liquid market is more transactional.”

Yield, structures and underwriting discipline

With the SOFR (Secured Overnight Financing Rate) still high and spreads layered on top, yields remain compelling.

“If we look at where yields are in the US middle market for first lien senior secured loans, they're in that 9 to 10% range… historical average has been 6.5 to 7%.”

Marti says floating-rate structures dominate the senior secured segment: “They're always going to be floating rate investments in our market.”

Amid increased competition and capital flows, underwriting discipline is key.

“It’s easy to get caught up in lending to a specific market environment, but you should be underwriting those investments to be sustainable for varying economic and interest rate cycles.”

She stresses, “Churchill is very good at maintaining that discipline. It's what has made us as successful as we have been in the US private credit space.”

Exit timelines and continuation vehicles

While private credit loans have legal maturities of six to seven years, exits typically happen in three to four years. Lately, however, those timelines are stretching.

“There are times when the deal will actually meet its ultimate maturity… and the sponsor is looking to hold onto that business even longer.”

This has led to the rise of continuation vehicles. 

“We have the ability to continue to finance that borrower in the new equity structure… you're holding those high-quality assets for longer, which isn’t necessarily a bad thing.”

Despite rising competition and interest rate headwinds, the US private credit market,  particularly the core middle market, remains fertile ground for discerning investors. 

With low defaults, attractive yields, disciplined underwriting, and unmatched sponsor relationships, Churchill Asset Management is well-positioned to navigate evolving market dynamics.