Featured Research
March 2019
Gabrielle Zadra
Bernard Gehlmann
Jeff Topor
Asset Class
Private Debt

In 2019, we updated our 2016 survey of middle market "sponsored" corporate borrowers focused on why borrowers were looking to direct lenders for financing rather than traditional banks. GP borrowers shared that increased bank regulation, including capital requirements and limits on types of lending, had curtailed some bank lending. On the other hand, GP borrowers cited the flexibility of non-bank lenders to structure creative deals, their ability to take on larger portions of a loan (both senior and junior), and the speed at which they can close deals as attractive reasons for moving business to non-bank lenders and away from traditional banks. Despite these trends, the most important consideration continues to be the relationship between the GP sponsor and lender, regardless of whether it is a bank or nonbank supplier of debt financing.

Sponsors described a large universe of willing non-bank lenders and an ability to choose lenders that best fit each company. Despite the amount of competition amongst non-bank lenders to win financing mandates, lenders have not compromised their due diligence processes nor have they moved significantly to more borrower friendly terms compared to three years ago. The erosion of sponsor relationships with bank lenders has created room to accommodate the growing field of nonbank lenders.

Our 2019 survey has expanded from 20 to 30 private equity firms focused on middle market buyouts. Responses were gained through one-on-one interviews which we have found to be more responsive and detailed than the cyber-surveys commonly used. The 2019 survey also asked more trend-oriented questions that have been raised by clients and investors since our last survey. Importantly, our summaries mask a wide range in responses for almost every question, making the expression "it depends" very applicable.