A Year in Review (Second of a Series)

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“How’s your pipeline?” we asked the head of one of the leading middle market arrangers in December. He shook his head. “The quality-adjusted deal flow is down.”

That distinction resonated with a number of our middle market brethren. Complaints centered around ebtida adjustments, over-liberal debt allowance baskets, and covenant-lite (or covenant-wide) structures. “High leverage per se is not the problem,” one lender fretted. “It’s the fictional ebitda the leverage is built around.”

Some of this structural erosion is attributable to sponsors trying to bring large cap terms down market. The same credit document that the PE firm used for a $250 million ebitda issuer is being rolled out for the $50 million borrower...



“The S&P is for institutional investors and the Dow is for everyone else.”
Nicholas Colas, chief market strategist, Convergex.

Chart of the Week: Growing Gap

Jan 16 2017 Chart v4

Large liquid loans have been hit with repricings, causing the illiquidity premium for the middle market to approach 200 bps – well above the historic average.

Lead Left Spotlight


David Petrucco, Ed Cerny, & Mark Gudis

Founding Partners

Backcast Partners

"Forecasting asks where historical trends will take you in the future. Backcasting is asking, where do you want to be in the future."

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Andrew Brady

Managing Director & Leveraged Loan Portfolio Manager

Marathon Asset Management

"When too many credits are priced the same, one can conclude that many are mispriced."

Read Interview
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Mickey Levy

Chief Economist for US and Asia

Berenberg Capital Markets

"Corporate tax reform and some easing of burdensome regulations likely would boost business investment spending."

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Tom Cassidy

Managing Director

US Bank

" Our PE clients are attracted to the commitment we have to build a deep relationship over the long term."

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Tod Trabocco

Managing Director

Cambridge Associates LLC

"Whatever the numbers tell you, anecdotal evidence suggests that many direct lenders are overwhelmed with opportunities to prudently invest their capital."

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Steven Miller


Fulcrum Financial Data

"The market has turned 180 degrees since January. It shows how dynamic the loan market has become."

Read Interview

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Leveraged Loan Insight & Analysis -1/16/2017

Non-sponsored MM new money picked up in 2016; refinancings dropped

Non-sponsored lending dropped to US$86bn in 2016 from US$93bn in 2015. In contrast with every other major market segment (overall, leveraged, investment-grade, institutional, middle market sponsored) which witnessed a quarter over quarter increase in volume in 4Q16, non-sponsored middle market lending of US$22bn, was down 7%. Refinancings, the main driver of volume since the credit crisis, were down 21% in 2016 to US$53bn. Most of the refinancings were done in previous years and there was not that much in the form of opportunistic refinancings as pricing has somewhat stabilized in this market...

The Pulse of Private Equity – 1/16/2017

Has US add-on activity peaked?

Last year, US private equity investors added on to extant holdings so frequently that the proportion of add-ons to all buyouts hit no less than 64%. The steady increase over the past six years, and especially the rapid surge of 3% even as overall activity fell, both speak to the increasing maturation of adding on as a PE investment strategy and its relative attraction in the current environment...

Private Debt Intelligence – 1/16/2017

Private Debt Fundraising Success, 2012 – 2016

Although private debt fundraising in 2016 did not match the levels seen in previous years, Preqin research finds that a record proportion of funds exceeded their target size. However, the year also saw funds take longer to reach a final close, on average, than in any previous year as smaller managers struggle to attract capital at the same rate as the most experienced firms.

In 2016, nearly a quarter (23%) of private debt vehicles exceeded their target size by more than 125%, while a further 38% of funds achieved 101-124% of their target...

Leveraged Loan Insight & Analysis -1/9/2017

2016 middle market syndicated loan issuance lowest since 2009

Middle market syndicated loan issuance only reached US$139bn in 2016, down 3% from 2015 levels and the lowest annual level tracked since 2009. Several factors drove the lower levels. The non-sponsored market was the biggest culprit as issuers had no incentive to hit the market to refinance as long term financings were locked in during previous years. Furthermore, slow growth and uncertainty surrounding the economy and macro events such as...

Middle Market Deal Terms at a Glance

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