Brady: Large-cap, mid-market deals are converging

Bill Brady, head of Paul Hastings’ alternative lender practice, explained to PDI that the strengthening of private credit has brought borrowing and inter-creditor terms both up- and down-market.

The distinction between large-cap and mid-market deals has blurred over the past two years giving borrowing frameworks more elasticity and creating inter-creditor terms more friendly to junior creditors, Paul Hastings’ Bill Brady told PDI.

Brady, head of the firm’s alternative lender practice, said the “flexible borrower-type terms” have influenced structures governing the ability of a borrower to service debt lower in the capital stack or make dividend payments and provisions regarding mergers and acquisitions.

The inter-creditor agreements more favourable to second-tier creditors typically come in hybrid deals, where first lien credit is “liquidated, syndicated paper” and junior debt that is “private paper that’s not traded or tradable,” Brady said.

“The bright line that used to exist between middle-market deals and large-cap deals seems not to have disappeared, but they are chipping away at it,” Brady said.

When asked what may lie in store for the asset class, Brady emphasised that the private equity sponsors will keep trying to push for the most favourable borrowing provisions.

“I think we’re also going to see more flexible, sponsor-driven terms, both in the middle-market and large-cap space,” Brady said. “The theme that we’ve seen is – and what I think we’re going to see more of is [the private equity sponsors] don’t want to make the phone call to the lender. They want maximum flexibility when the deal closes for acquisitions, for incremental debt.”