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The Middle-Market
Lending Update

Many assume debt is growing more expensive as interest rates rise

Contrary to the negative headlines, borrowers can still achieve near-
historically low rates by leveraging dry powder and debt markets
competition to their advantage

Commercial U.S. bank deposits are under $18 trillion, just below the all-time high

Default rates are hovering above 1%, near historic lows

$3.2 trillion in private markets dry powder is down from the 2020 peak, but still near all-time highs

The 30-day average SOFR rate is climbing higher, currently standing at 2.6%

The Middle-Market
Lending Update

Many assume debt is growing more expensive as interest rates rise

Contrary to the negative headlines, borrowers can still achieve near-
historically low rates by leveraging dry powder and debt markets
competition to their advantage

Commercial U.S. bank deposits are under $18 trillion, just below the all-time high

Default rates are hovering above 1%, near historic lows

$3.2 trillion in private markets dry powder is down from the 2020 peak, but still near all-time highs

The 30-day average SOFR rate is climbing higher, currently standing at 2.6%

3 Outcomes

Banks have plenty of capital to lend, and therefore don’t have to raise rates to attract depositors. This keeps interest rates on loans in check, at least for the time being

Direct lenders are still eager to actively participate in middle-market lending, given the excess dry powder at their disposal

Both banks and direct lenders are issuing term sheets with a relatively high interest rate initially, only to be negotiated down once the borrower is able to produce competitive terms

3 Outcomes

Banks have plenty of capital to lend, and therefore don’t have to raise rates to attract depositors. This keeps interest rates on loans in check, at least for the time being

Direct lenders are still eager to actively participate in middle-market lending, given the excess dry powder at their disposal

Both banks and direct lenders are issuing term sheets with a relatively high interest rate initially, only to be negotiated down once the borrower is able to produce competitive terms

There is a tug-
of-war going
on in debt
markets

Macroeconomic forces (economic uncertainty, interest rate
increases) are conspiring to push rates higher.

Yet market forces (competition, dry powder) are
counteracting as extremely powerful headwinds.

Macroeconomic forces (economic uncertainty, interest rate
increases) are conspiring to push rates higher

Yet market forces (competition, dry powder) are
counteracting as extremely powerful headwinds

Macroeconomic forces (economic uncertainty, interest rate increases) are conspiring to push rates higher

Yet market forces (competition, dry powder) are counteracting as extremely powerful headwinds

Despite media pronouncements, borrowers can still obtain near-historically low rates by widening their lender outreach to provoke competition for their deal
The key is approaching a large pool of lenders, thereby increasing the odds of pitching a capital provider who is eager to gain exposure to your deal’s attributes (industry, geography, debt structure, etc.)

Lenders have tightened their standards with a focus on credit quality
Many are reducing exposure to cyclical industries, maintaining strict concentration limits, or waiting on the sidelines until a meaningful recession reduces company valuations
There is greater uncertainty around the loan approval process for borrowers. Front-end bankers have less visibility into how credit committees will perceive the deal once it reaches their desk
Lenders are issuing more restrictive terms with higher costs of capital (see below for steps borrowers should take to mitigate this)
Borrowers should expect delays during the lender DD process

Despite media pronouncements, borrowers can still obtain near-historically low rates by widening their lender outreach to provoke competition for their deal
The key is approaching a large pool of lenders, thereby increasing the odds of pitching a capital provider who is eager to gain exposure to your deal’s attributes (industry, geography, debt structure, etc.)

Lenders have tightened their standards with a focus on credit quality
Many are reducing exposure to cyclical industries, maintaining strict concentration limits, or waiting on the sidelines until a meaningful recession reduces company valuations
There is greater uncertainty around the loan approval process for borrowers. Front-end bankers have less visibility into how credit committees will perceive the deal once it reaches their desk
Lenders are issuing more restrictive terms with higher costs of capital (see below for steps borrowers should take to mitigate this)
Borrowers should expect delays during the lender DD process

Inflationary and recessionary pressures are prompting
lenders to rethink their approach

Yet there is still room for borrowers to maneuver

Inflationary and recessionary pressures are prompting lenders to rethink their approach Yet there is still room for borrowers to maneuver

2 steps borrowers need to take:

Borrowers should address lender risk concerns (FCF consistency, performance during recessionary pressures, etc.) in their pitch
Lenders would prefer to issue a lower interest rate on a more conservative deal than accept a riskier deal at a higher rate

A small network of bankers isn’t enough in the current lending climate
Borrowers need to nationalize their deal
Scaling outreach through a digital platform like CAPX offers an immediate, no-risk solution

2 steps borrowers need to take:

Borrowers should address lender risk concerns (FCF consistency, performance during recessionary pressures, etc.) in their pitch
Lenders would prefer to issue a lower interest rate on a more conservative deal than accept a riskier deal at a higher rate

A small network of bankers isn’t enough in the current lending climate
Borrowers need to nationalize their deal
Scaling outreach through a digital platform like CAPX offers an immediate, no-risk solution

STAY UP TO SPEED

Explore middle-market lending trends, and learn how borrowers can obtain near-historically
low rates, even during this time of rising interest rates

CAPX is an end-to-end digital marketplace that connects middle-market borrowers with bank and non-bank lenders. We help
borrowers instantly expand their lender outreach and create a national campaign for their deal, all at no cost to the borrower.

To learn more, click here to schedule a call with one of our debt experts

CAPX is an end-to-end digital marketplace that connects middle-market borrowers with bank and non-bank lenders. We help borrowers instantly expand their lender outreach and create a national campaign for their deal, all at no cost to the borrower. To learn more, click here to schedule a call with one of our debt experts

The Middle-Market
Lending Update

The Middle-Market
Lending Update

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The Middle-MarketLending Update

The Middle-MarketLending Update

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Capital Providers on CAPX

FIND THERIGHT CAPITAL

HOW CAN WE HELP?

ORIGINATE NATIONWIDE

KNOW THE MARKET FOR YOUR CREDIT

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The Middle-Market
Lending Update

The Middle-Market
Lending Update

FIND THE
RIGHT CAPITAL