Markets at the Midpoint (Last of a Series)

The setting was Arlington Park, a storied horse racing venue about a forty-five minute Uber ride northwest of Chicago. We had just lost $50 on a “sure thing” in the 5th race, though we should have been suspicious with a horse named Diminishing Return.

The summer gathering there was hosted by one of the leaders in middle market finance, and has always been a superb way to hear what’s going on in the minds of industry players. It turns out bankers’ views of market activity mirrored the action on the track – periods of inactivity punctuated by brief cheering and ticket shredding.

“Things are definitely picking up,” one participant commented, “especially over the past few weeks. But it remains competitive. We see properties with sponsors in the early stages of auctions where leverage is being pushed. Some businesses can handle six times [total ebitda] or more, but others can’t. That’s where our focus is.”

How about senior leverage? “Around four times, give or take, for good credits,” another top capital markets veteran said. “But on what ebitda? Is it pro-forma, adjusted, run-rate on quarterly numbers? That’s more important than the leverage multiple.”

That sentiment was echoed by others as well. We chatted with a top arranger as they cashed in their trifecta winnings. Are we in for a more sell-side friendly market?