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Private Equity Appetite Driving Riskier Lending Behavior in Middle Market

June 25, 2018, 08:00 AM
Filed Under: Industry News

A flood of private equity investment into the institutional middle market has pushed the share of highly leveraged deals in the sector to record highs, with more lenders negotiating "borrower-friendly" deals that include lower spreads, looser documentation terms and less investor protection, Reuters reports.

More than half of the middle market buyout deals sold to institutional loan buyers (53%) in 2018 so far have had leverage of 6.0 times or higher, according to Thomson Reuters LPC data. In 2017, nearly 49% of deals had leverage greater than 6.0 times and in 2007, prior to the financial crisis, only 24% of deals had leverage above that level, according to the report.

As ABL Advisor reported last week, many investors now believe the private debt market is at a peak, and that the coming months will see a correction. According to a survey of private debt investors by Preqin and NXT Capital survey, investors are NOW looking increasingly to US lower-middle-market direct lending and counter-cyclical strategies. 

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