“We can do this the easy way or the hard way.”
“What’s the hard way?”
“It’s harder. It’s harder than the easy way. That’s what I know.”
This classic exchange between Benicio Del Toro and Alicia Silverstone in the otherwise forgettable 1997 comedy Excess Baggage came to mind as we followed recent developments in the leverage loan market. It’s often a puzzlement how middle market arrangers assess the best way to get transactions safely through the distribution process.
One shift this year has been increased receptivity of larger midcap credits by institutional buyers. Last year arrangers used their burgeoning capacities to commit and hold more dollars to underwrite financings. Today investment banks are fighting back by offering sponsors the so-called benefits of a syndicated process.
This trend is in part thanks to fewer buyouts in the broadly syndicated space. It’s also exacerbated by large cap liquidity that has caused those spreads to contract, making middle market all-in yields even more attractive.