Credit Solutions for the

Middle Market


A Year Later, Reality is

Sweeter than Fiction

2021 2nd Quarter Report

Observable Credit Markets

According to the National Bureau of Economic Research, the COVID-19 recession ended in April 2020. At that time, few could predict how far things would come in the subsequent 12 months. Now recognized as the shortest recession on record, it took credit markets slightly longer to shake it off, but private debt has emerged from out of the woods at a fearless pace. Buyouts led the charge (accounting for nearly 35% of transactions), slightly outpacing refinancings, as borrowers of all sizes across industries took advantage of robust demand and favorable monetary policy to slash interest costs and push maturities forward.

The revitalized market is not without bad blood. A tug-of-war between private credit providers and the syndicated market has become apparent. Flush with cash, private debt lenders are quietly taking down large, high-profile deals. In early June, Thoma Bravo announced a deal to take Qlik Technologies private. Though the $3 billion valuation exceeds conventional middle market parameters, the financing was supported by a unitranche loan including arrangers Ares, Golub, and Varagon.

Tabs Scroll Right

Pricing dipped to 2018 levels, but was weighted towards larger middle market deals, where credit funds are taking share from the broadly syndicated market.

Issuance related to LBO and M&A constituted the vast majority of volume as high asset valuations continue to entice company founders and private equity sponsors to market.

Total leverage ticked up vs Q1 2021, primarily attributable to outsized M&A volume and lenders’ willingness to provide at least 50% of purchase price. Notably, LCD data did not include any observations for loans less than $200MM.

The spread of for institutional loans to middle market vs large corporate deals peaked in 2020, but remains well above historical levels, suggesting price concessions are granted as private lenders attempt to take market share from broadly syndicated alternatives.

LIBOR Replacement Roundup

LIBOR Replacement Race Heats Up

May 13, 2021

SOFR is an overnight rate dubbed nearly risk-free, which means it doesn’t reflect increased costs of funding during a crisis. [It] makes switching complex for borrowers who need a rate sensitive to market conditions, such as corporate treasurers, who like to fix payments in advance.

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New U.S. Credit Benchmarks Gain Traction as LIBOR Deadline Approaches

April 26, 2021

Ameribor and Bloomberg’s Short-Term Bank Yield Index (BSBY) are gaining interest as benchmarks for loans, though the move is in its early stages. ICE Benchmark Administration, part of the Intercontinental Exchange, also plans to offer the U.S. Dollar ICE Bank Yield Index as a LIBOR replacement.

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Stock Ticker


Transition Disruption Possible with No Clear Successor to USD LIBOR

June 29, 2021

The slow transition from USD LIBOR to potentially multiple alternate rates for new instruments may increase disruption risk for banks and certain structured finance issuers at the start of 2022, Fitch Ratings says. The USD debt market appears destined toward a multi-rate environment, particularly for small- to mid-size lenders, while most larger financial institutions seem to prioritize the use of Secured Overnight Financing Rate (SOFR) rather than other replacement rates.

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New York’s Legacy LIBOR Legislation: A User’s Guide to Fall Back On

April 9, 2021

The legislation provides for, among other things, two basic fixes for certain legacy contracts:

  1. automatic replacement of LIBOR by the “recommended benchmark replacement,” which is expected to be based on the Secured Overnight Financing Rate (“SOFR”); and
  2. for a contract that has a “determining person” (a trustee, a calculation agent or the like, as discussed below), replacement of LIBOR by the recommended benchmark replacement, as selected by the determining person.

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