Boston, MA – Capstone Headwaters released its Q2 Middle Market Leverage Finance report today, reporting that middle market (MM) lending activity came to a screeching halt in Q2 and only recently has new issuer volume returned. However, the focus initially has been on opportunistic, well-structured financings involving fundamentally sound businesses in recession-resistant sectors. According to the report, companies in cyclical sectors hard-hit by the recent market changes will still be able to find new capital, but on decidedly investor-friendly terms that will reflect today’s higher loan pricing, conservative valuations, and creative risk-return structures.
With limited new deal activity, the opaque MM Leverage Lending market has provided limited relevant data points since the onset of the COVID-19 pandemic. However, given the similarities in credit quality, we can derive valuable insight between the broadly syndicated Leverage Loan market and the MM. As a result, key market indicators point to a sharp decline in credit quality as borrowers navigate through the economic fallout of the COVID-19 pandemic and the various measures taken to limit its spread.
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