The fundamental thesis governing credit risk for bond holders relative to loan holders is that the latter is advantaged by the seniority and secured position in the issuer’s capital stack. As our Chart of the Week shows, these two elements work together to give loan investors the best chance for the highest recovery in case…
In this series we are examining the characteristics of public debt, such as high yield bonds, compared with those of private credit instruments. Last week we covered interest rate risk and relative default rates. Now let’s turn to relative yields. As our Chart of the Week shows (reprised from last week), there’s been a steady…
One of the more discussed charts we’ve run in this newsletter recently compared direct lending yields with that of high-yield bonds. Seems as if many were surprised at the significant spread differential between the two asset classes. For those who missed this chart, we reprise it below as our Chart of the Week. It made…
In this special series on the outlook for leveraged lending for the year, we’ve looked at what our readers can expect for deal terms, including pricing, leverage, structures, and covenants. We’ve also closely examined the factors that will affect the supply and demand for transactions. Last week, we covered the future of credit quality. Finally,…
Last week we punctured the myth that the influx of new private debt funds is creating excess demand for the level of deal supply of middle market senior loans [link]. We now turn our attention to credit quality. How will this year fare for credit investors relative to years past, and expectations? First, let’s separate…
Last week we ventured some thoughts on where this year would take us on middle market deal terms – pricing, leverage, structures, and covenants [link]. This week we examine the supply and demand technicals we expect will drive those terms. First, let’s dispel the persistent myth of too much cash chasing too few deals. Last…
If we learned one thing in 2016, it was that predictions of many sorts went awry. From national departures from economic unions, to presidential elections, to World Series champions, the unlikely became reality. With that in mind, we will offer in this series some thoughts on what’s to come this year in middle market lending,…
2016 was the Chinese Year of the Monkey. We’re not sure what this meant, or how it applied to the middle market, but in looking at how loans spreads behaved throughout the year, there might have been some relationship. For one thing, all-in spreads swung around wildly month to month. February, according to LPC, was…
“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 ebitda adjustments, over-liberal debt allowance baskets, and covenant-lite (or covenant-wide) structures. “High leverage per…
Along with the sense that mid-cap lenders can now more than hold their own against the largest investment banks in terms of deal size has come a predictable question: With all the lending capacity that’s now available in the middle market, isn’t there too much cash chasing too few deals? A long-time middle market practitioner…