Bones and Loans

The 21st century and our prehistoric past met near a parking lot at NASA’s Goddard Spaceflight Center. An amateur paleontologist spotted dinosaur tracks at the Greenbelt, MD facility, in an area slated for demolition to make room for an office building.

Once unearthed, a 8.5 foot long sandstone slab revealed more than eighty prints of both mammals and dinosaurs that walked together on this tract over 100 million years ago. “It’s unusual to have such a large concentration of different kinds of tracks and small tracks in such a small space,” said Martin Lockley, a professor of geology in Denver.

Apparently Dr. Lockley has never studied the world of private credit.

Many species of lenders inhabit the middle market. Senior debt providers with very different return parameters can work together in the same transaction. In both first-lien/second-lien and unitranche facilities lenders’ blended rates provide sponsors and issuers with a variety of financing options.

With fundraising for credit vehicles at record levels and the new deal pipeline skimpy this year, debt investors worry all-in-spreads will tighten. As we’ve noted in this space, that challenges risk/return dynamics. Why should a high-yield bond yield the same as a fully secured loan with a covenant?