With the announcement by Economic Analysis Office now that GDP is estimated to have fallen for a second straight quarter, that likely means mergers and acquisitions will slow even further. Market volatility has already seen some big business falls apart because it is difficult to get loans for them. So what are middle market traders going to do in this difficult climate? Turn to direct lenders.
A PE-backed CEO recently told me that for lower-middle markets and add-on offerings, it might be easier to get funding. Lenders insist that direct lending remains a viable option.
“Direct lending is a vital funding strategy for middle market companies and their sponsors,” says Chris Flynnpresident of First Eagle Alternative Credit, following the alternative credit manager’s fifth direct fundraising round. The company lends up to $250 million to equity-backed companies in business and financial services, healthcare, information and technology services, and consumer services.
First Eagle isn’t the only company seeing an increase in private credit opportunities in this market. Earlier this year, Stellus Capital Managementa direct lending service provider, raised $225 million for Stellus III Credit Fund.
There is a number of advantages to use direct lenders, including the speed, flexibility and certainty they offer in completing transactions, and in many cases they are also cheaper. And middle market lenders predict that private lending will remain robust.
“We’re cautious about putting cash to work now and looking for recession-proof companies,” Flynn said. Mergers and Acquisitions. “We expect direct loan prices to continue to rise.”