Actionable Ideas for Companies and Sponsors

Recapitalizations for Middle-Market Transactions

With the current loan calendar showing net negative loan supply, together with a lack of new LBO financings, now is a good time for companies which have completed middle-market or club loan transactions to explore refinancing in the broadly syndicated market—for dividends, for M&A tack-on flexibility or for maximizing leverage.

The supply/demand imbalance also allows for issuers with $40 to $75 million of EBITDA to put in place a covenant-lite structure—a structure usually reserved for issuers with $75+ million of EBITDA. In addition, by entering the syndicated loan market, the issuer will be better positioned to attract more aggressive financing in a future sell side process versus an issuer unknown to the syndicated market. Lastly, as a result of the pandemic, we have seen many middle market direct lenders back away from the leveraged loan market or dramatically reduce their hold positions, limiting optimal execution in the club loan market.