The latest trends across the mid-market lending space
The mid-market is known as a particularly resilient segment of the private credit industry, and investors and lenders alike are increasingly seeking out corners of the market perceived to be better protected from recent macroeconomic upheaval. In this special report, we examine the competitive dynamics at work in the direct lending space, why some investors are turning their attention to new strategies, and the impact that tariffs might have on mid-market companies in the months ahead.
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Taking the mid-market’s temperature
Industry data focused on mid-market companies shows several reasons for private credit funds to be optimistic about this segment of the market.
Private credit deals: No sponsor? No problem
Non-sponsored deals are becoming more prevalent in the private credit industry as lenders grapple with declines in private equity fundraising.
PREVIOUS COVERAGE
Are the tides starting to turn for small and medium-sized businesses? The mid-market appears ready for a soft landing after a promising start to 2024. M&A looks finally set to rebound and lenders report a bullish sentiment. Private Debt Investor’s Mid-Market Lending Report pinpoints the sectors driving the sector in 2024.
Seven growth opportunities: The return of the mid-market
M&A activity looks set to finally rebound in 2024, with lenders reporting a strong start to the year.
Three key trends in mid-market lending
The mid-market appears all set for a soft landing after promising start to 2024.
Growth opportunities: NAV lending
NAV loans are an increasingly popular tool for accessing liquidity.
Growth opportunities: Credit secondaries
Investors in search of liquidity are driving the secondaries market.
Growth opportunities: Asset-based lending
Lenders are keen to diversify away from cashflow-based lending into more esoteric areas.
Growth opportunities: Junior capital
Junior debt is helping to bridge pricing gaps and refinance stretched capital structures.
Bain Capital on the importance of diversification in the core mid-market
The key to investing in the mid-market is the ability to pivot across geographies and different industries, says Michael Ewald, a partner and global head of private credit at Bain Capital.
Casting the net wider post-covid
Sector focus is changing as lenders reassess the mid-market.
Apera Asset Management on why it pays to think small in the mid-market
With low levels of leverage, enhanced structural protections and limited competition, the European lower mid-market is the place to be, say Apera Asset Management partners Klaus Petersen and David Wilmot.
Dunport Capital Management dispels lower mid-market myths
There are some common misconceptions associated with lower mid-market lending, says DunPort Capital Management’s Ross Morrow.
Leveraging relationships in a competitive mid-market
Standing out from the crowd requires a solid understanding of what sponsors are looking for.
Bridgepoint Credit: The tide is turning for new mid-market deals
Private equity sponsors have the confidence to step back into the market after a sluggish 2023, say Bridgepoint Credit’s Paul Johnson and Andrew Cleland-Bogle.
What do lenders want from sponsors in the mid-market?
With private equity investment activity picking up, lenders reveal to Jon Yarker what they need to see from these sponsors to partake in deals.
Adams Street Partners on the compelling opportunity in mid-market credit
Yields from private debt are currently at decade highs, potentially making this a very attractive vintage for the asset class, says Bill Sacher, partner and head of private credit at Adams Street Partners.
Twin Brook Capital Partners: Capital structures remain key to recovery
Default rates are starting to increase in the upper mid-market, making credit terms more important than ever, says TPG Twin Brook Capital Partners’ Kim Trick.
Mid-market takeaways from PDI Europe
Mid-market lending came in for scrutiny at Private Debt Investor’s Europe Summit in London, with investors raking over what defines the sector and where it needs to look next.
Churchill Asset Management: The portfolio effect
Platform deal volumes may still be down, but portfolio-based activity is keeping lenders busy, say Churchill Asset Management’s Jason Strife and Mat Linett.
Barings: How and why direct lending business models are diverging
Direct lending deals are getting bigger – but arguably, the most compelling relative value still lies in the traditional or ‘true’ mid-market, say Barings’ Tyler Gately and Stuart Mathieson.
MGG Investment Group: Let the private credit Hunger Games begin
Lenders to sponsors face declining odds and a rise in creditor-on-creditor violence, says Greg Racz, president and co-founder, and Daniel Leger, managing director at MGG Investment Group.
The UK mid-market proves its worth
With banks continuing to shun UK SMEs, a lucrative environment has emerged for lenders willing to focus on this part of the market.
MV Credit: Tough conditions shine light on performance
The testing market makes this the ideal time to assess which managers have the most resilient portfolios, says MV Credit’s Frédéric Nadal.
Prefequity: Filling the gap for lower mid-market structured capital
The big challenge facing smaller companies is the ongoing reduction in bank lending and the lack of viable alternatives, says Theo Dickens, managing partner at Prefequity.
NXT Capital: When it comes to the mid-market, bigger is not always better
The lower mid-market offers distinct advantages in all kinds of macroeconomic weather, say NXT Capital co-heads Ted Denniston and Joe Lazewski.
RBC BlueBay Asset Management: Capitalising on special situations in the mid-market
Stressed investments that don’t require restructuring can prove a rich source of performance, says Adam Phillips from RBC BlueBay Asset Management.
After defying expectations in the last two years, private debt’s most dynamic market could be expected to cool off in 2023 as the macroeconomic realities start to bite. But there’s overwhelming consensus that the current difficulties in both the banking industry and the deal market will play to the strengths of the mid-market. We consider the key trends driving the sector in 2023 and look at how fund managers are achieving double-digit returns despite the tough environment.
Mid-market lending: Private debt benefits as banks pull back
How do you characterise the state of the mid-market? There’s something of a reality check going on.
Mid-market lending trends: The return of distressed debt
Opportunistic credit funds are seeking to benefit from macro uncertainty.
Mid-market lending trends: The need to deal with inflation
Interest rate rises to tame inflationary pressures have ‘wrought havoc’ on private debt portfolios, so how are lenders reacting?
Mid-market lending trends: Why flexibility is king
Fund managers able to play across the capital structure are best placed.
Mid-market lending trends: The changing M&A market
Global deal values hit a 20-year low in January, but the picture is mixed.
Mid-market lending trends: The growth of the lower mid-market
Smaller businesses can offer outsized returns but managers need to do their homework first.
Mid-market lending trends: Sector specialism in North America
US direct lenders are seeking to gain an edge with industry knowledge.
Mid-market lending trends: The continued growth of direct lending
Direct lenders don’t seem rattled by a more challenging backdrop.
Mid-market lending trends: Emerging markets in Europe
US direct lenders are seeking to gain an edge with industry knowledge.
Mid-market lending trends: The Asian opportunity
Direct lending is continuing to gain importance in the Asia-Pacific region.
Mid-market lending trends: Committing to DE&I
Investors are seeking reassurance about diversity, equity and inclusion.
The mid-market proves its worth in a downturn, says Churchill
Financing trends are moving in favour of private debt, say Mat Linett and Randy Schwimmer, co-heads of senior lending at Churchill Asset Management.
Barings: Higher base rates provide tailwinds for private debt
Investors continue to enjoy a strong debt market, with newer transactions potentially offering lower leverage and increased returns, say Barings’ Adam Wheeler and Mark Flessner.
FC Capital: Australia’s investors migrate to private debt
The risk-adjusted returns in Australia’s emerging private debt sector consistently beat comparable investments in the more sophisticated markets of Europe and the US, says Christian Brehm, CEO of FC Capital.
Private debt set to prove its value, says Park Square
The market offers unprecedented opportunities for disciplined lenders, says Park Square’s Robin Doumar.
Why a flexible strategy is key in 2023, says Partners Group
Navigating a difficult and uncertain market environment requires creative financing solutions, say Partners Group’s Oliver Baker and Abhishek Dhayal.
Benefit Street Partners: Why private credit is the best option for mid-market buyers
We see a historic opportunity to achieve double-digit unlevered returns on senior secured debt through rigorous underwriting and mindful credit selection, says Blair Faulstich, senior portfolio manager at Benefit Street Partners.
Capital Four: Core factors for attractive returns in the lower mid-market
A robust macro backdrop and strong Nordic PE community combined with expert pricing capabilities and leading ESG scoring means a lower mid-market premium, says Sandro Näf, co-founder and CEO of Capital Four.
Twin Brook Capital Partners: In the face of uncertainty, relationships matter
A high-touch approach to working with borrowers and private equity sponsors plays a key role in portfolio management, says Kim Trick, co-chief credit officer and head of underwriting at Twin Brook Capital Partners.
MGG Investment Group: Closing the barn door after the horse bolts
The time for lender protections is before the economic downturn, say MGG Investment Group’s Daniel Leger and Gregory Racz.
Adams Street Partners: Shift to private debt represents ‘a step change’
The popularity of the direct lending market is likely to be structural and long-lasting, say Bill Sacher, James Charalambides and Leland Richards from Adams Street Partners.
Private debt markets have defied the doubters over the past 12 months and roared ahead in terms of both dealflow and fundraising. The mid-market has proved no exception. After an exceptionally strong end to 2021 we look at whether the optimism can continue into 2022 and ask if it’s better to take a sector-specific or generalist approach in this crucial market segment.
Five trends in the mid-market
The sector had a stellar end to 2021, but macro concerns are beginning to weigh on dealflow.
Inflationary squeeze weighs on portfolios
The rising costs of labour, energy and raw materials are putting pressure on private debt funds and creating uncertainty in the mid-market.
Getting the mid-market mix right
How sector specialists are taking on the generalists as mid-market direct lending competition heats up.
The A-Z of Healthcare
The pandemic has shone a spotlight on the importance of the healthcare sector. Some of the letter choices were more obvious than others: no surprise for guessing that C stands for covid.
Technology lending rides high
Equity support from sponsors and strong growth rates shine a spotlight on opportunities for private mid-market creditors.
Adams Street: Disruption creates openings for private capital
The opportunity set for private credit appears to be becoming more favourable, despite the challenges of inflation, tight labour markets and rising interest rates, say Adams Street Partners’ Bill Sacher, Fred Chung and Justin Lawrence.
Twin Brook: Another busy year in sight for the mid-market
After a record-breaking 2021, a slower start to 2022 should not be viewed as an indicator of the pace of mid-market activity for the balance of the year, says Grant Haggard, senior partner at Twin Brook Capital Partners.
A-Z of Healthcare: A-E
In the first part of our A-Z, we examine ancillary healthcare, biotech, covid-19, digitisation and eldercare.
A-Z of Healthcare: F-K
The second part of our A-Z looks at financing, growth, healthtech, infectious diseases, joint ownership and KOLs.
Partners Group on finding opportunities on both sides of the Atlantic
Tom Stein, head of private debt Americas, and Chris Bone, head of private debt Europe, at Partners Group discuss the opportunities and challenges facing direct lenders in Europe and the US.
Schroders on the opportunities for real estate debt
As banks continue to retrench, there is a huge unmet need for real estate credit across Europe, says Natalie Howard, head of real estate debt at Schroders Capital.
A-Z of Healthcare: L-P
The third part of our A-Z looks at logistics, mental health, nursing homes, outcomes and pharmaceuticals.
A-Z of Healthcare: Q-U
The fourth part of our A-Z looks at quality of care, R&D, scalability, tie-ups and universal healthcare.
Tree Line Capital Partners on navigating ARR lending
Software lending continues to provide an attractive opportunity for direct lenders, but today’s market requires extra attention on deal selection, says Frank Cupido of Tree Line Capital Partners.
Monroe Capital: New year, new inflection point
As geopolitical tensions create new uncertainties after a record-breaking year for private credit, Monroe Capital’s Mick Solimene outlines how a ‘credit first, zero loss’ posture provides visibility amid the fog.
A-Z of Healthcare: V-Z
In the final part of our A-Z we look at visualisation, wellbeing, X-rays and diagnostics, youth services and Zoom healthcare.
Bridgepoint: Direct lenders offer stability in uncertain times
Over a period of volatility, resilient sectors of the economy such as technology and healthcare are proving their worth, says Paul Johnson, partner and head of direct lending at Bridgepoint Credit.
Churchill: Scale, execution and relationships emerge as key traits
After a record-breaking 2021, the managers that performed well through covid are in good shape to deal with challenges on the horizon for 2022, say Churchill Asset Management’s Jason Strife and Randy Schwimmer.
Our annual Mid-Market Lending report is a valuable benchmark for how private debt is faring as we move into the second quarter. The good news is that with the European mid-market continuing to grow – one report even has it outpacing the US within a decade – everything points to another strong year for lending.
The mid-market: Back on the right track
With portfolios largely intact and banks in retreat, the mid-market private debt industry is ready to declare victory over covid.
Key trends in mid-market lending
The mid-market appears to have shaken off covid-19, with help from the disciplined approach taken by managers.
Twin Brook: The deal pipeline is building
After a slowdown following the eruption of the pandemic in early 2020, direct lenders can look forward to a busy year ahead, say Rich Christensen and Grant Haggard, senior partners at Twin Brook Capital Partners.
Northleaf: The growing market for specialty finance lending
Investor appetite and borrower demand for specialty finance is growing. But this is a niche market that requires a specialist approach, says Northleaf managing director Michael Morris.
How to stand out from the crowd in the European mid-market
It's becoming more competitive, with a recent report suggesting that direct lending in Europe could dwarf the US within a decade. We suggest five ways managers can get ahead in this congested space.
MGG: What’s changed and what hasn’t in US mid-market lending
For all the upheaval caused by the pandemic, some things in the US lower mid-market just stay the same, say Daniel Leger and Gregory Racz of MGG Investment Group.
Capital Dynamics: The lower mid-market road less travelled
Jens Ernberg and Thomas Hall, co-heads of private credit at Capital Dynamics, discuss opportunities in the often overlooked sector.
Barings: Riding the refinancing wave
Private credit has fared well during this crisis, but the real test may come at the back end, say Barings’ head of private assets Eric Lloyd and CFO of Barings BDC Jon Bock.
China: Private debt land of opportunity?
Surprisingly little is known about the exact size of the country’s private debt market, but a widening financing gap is providing plenty of potential for fund managers in the mid-market.
Churchill: The big direct lending bounce back
A high-velocity vaccine rollout, $1.9trn stimulus package and a year of pent-up consumerism mean the future is bright for US mid-market direct lending, says Churchill Asset Management’s Randy Schwimmer.
Have fund managers really left the crisis behind?
The private debt deal market is picking up as confidence grows, but there still may be a long journey back to normal.
SME lenders pin hopes on growth in 2021
This year has seen small company financing dominated by state-backed schemes. But as they come to an end, fund managers can reclaim lost territory.
A global economic downturn has been anticipated for quite some time now, but no one could have foreseen the single factor that would suddenly tip markets into meltdown mode – a virus.
Covid-19 is wreaking its havoc across the world in quite spectacular style. So, amid the growing turmoil, how will the mid-market lending space stand up?
Five fast themes on the coronavirus’s impact on mid-market direct lending
Covid-19 and the fallout from a global economic downturn are set to weigh heavily on LPs’ and GPs’ minds in 2020.
Twin Brook Capital Partners on managing for today and tomorrow
In the direct lending space, portfolio management has come under increased focus, explain Twin Brook’s Drew Guyette, Therese Icuss and Kim Trick.
Tree Line Capital Partners: Prepare for the unexpected
Tree Line’s Tom Quimby on why it is incumbent on direct lenders and LPs to place a premium on the fundamentals in order to deal with unforeseen events, like covid-19.
Direct lending’s acid test
It is now one of the most popular subsets of the private debt universe, but covid-19 could be about to give this booming sector its toughest test yet.
Churchill Asset Management: Business as usual for private credit and direct lenders?
As the world grapples with a public health emergency, public markets have been quick to react. Churchill’s Randy Schwimmer assesses the potential impact on private credit investments and the US mid-market.
Upside in a downturn
Private debt managers active in mid-market direct lending will not escape a downturn unscathed, but they can also see opportunities in slowing growth.
Kartesia on why Europe is ripe for a special situations uptick
Conditions have rarely looked so favourable for special situations funds, which can now drive solutions to Europe’s liquidity challenges, argues Jaime Prieto, founding partner of Kartesia.
EQT Partners on navigating the storm
As the global coronavirus pandemic pushes investors to evaluate defensive opportunities, it’s time to pay closer attention to the risk/return dynamic, says EQT’s Paul Johnson.
Debt funds on thin ice?
Increasingly borrower-friendly terms are a result of high liquidity and competition among private debt funds. But are players taking on risker propositions? Proskauer partners Alex Griffith and Faisal Ramzan share insight.
Has return on capital subdued in Asia-Pacific?
Large-cap investors saw lower returns on capital over a 10-year period. But for direct lenders, this has not necessarily been the case.
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