Middle Market Leveraged Finance – June 2021

Strong 2021 Leveraged Finance Outlook Amid Borrower-Friendly Conditions, Vaccinations, and Economic Recovery   

Capstone Partners released its June 2021 Middle Market Leveraged Finance Report, providing timely insight on the volume, pricing, and leverage statistics of today’s Credit markets.

The Private Credit market has grown exponentially over the past decade and that trajectory is certain to continue. As of mid-January, there were 266 direct lending funds in market seeking to raise $150 billion of capital commitments. Comparatively, the previous high-water mark was in 2017, when 100 funds with a direct lending mandate were fundraising. The driver of this spike is clear – in a world where monetary stimulus has pushed global interest rates ever lower, direct lending provides investors with significantly more attractive risk-adjusted returns than other fixed-income alternatives

In Q1 2021, loan volume surged to $2.2 billion, the highest quarterly total since Q3 2019. Pent-up demand was buttressed by the sense that a return to normalcy was on the horizon. Healthcare led the way, accounting for 30% of volume; interestingly, Retail and Gaming & Hotel, two sectors that were all but banished by lenders throughout the pandemic, combined to represent ~36%. Refinancings and leveraged buyouts (LBOs) represented nearly 70% of volume with dividends (17.6%) and mergers (12.6%) accounting for the remaining balance.

Also included in this report:

• Additional key factors driving the frothy market
• How the impending wave of repayments will impact market conditions
• Recommendations for companies and sponsors with financing needs