While much of the published research has been focused on publicly traded securities, FocalPoint’s Capital Markets group has conducted extensive calls with a wide spectrum of middle market lenders and investors to understand how COVID-19 has impacted their current and prospective investments, resulting in several common themes.
After the largest asset sell-off in history and plunging equity values across all sectors, it has become apparent that the COVID-19 pandemic poses a significant threat to both human health and the global economy. Within the consumer sector, travel and leisure industries have seen a dramatic drop in demand, and retail foot traffic has plummeted, shutting down service industries including restaurants and retail. Supply chains for manufacturers have been disrupted, and oil and gas prices are the lowest seen in a generation. The sudden constraint on cash flow will have many private equity sponsors and middle market companies searching for liquidity and credit options.
According to LCD1, only about $8.6 billion of leveraged loans hit the market in March 2020 compared with $81.4 billion in January 2020. Juxtaposing these negative impacts, Pitchbook’s recent Global Private Fund Strategies Report notes that “over $2.4 trillion of dry powder is sitting in private vehicles. Private debt funds are also sitting on record capital bases ($275 billion) by year-end2 .” At a time of such great turbulence and uncertainty, we expect to see a dramatic decrease in leverage profiles and increased scrutiny on underwriting. Beyond that, we thought it would be instrumental to highlight some of the not-so-obvious trends in the private debt markets. In the last couple of weeks, the Capital Markets team at FocalPoint has spoken to numerous lenders across the private credit spectrum, and we thought it was worthwhile to share some of the following insights. Click the link to read the report.
About FocalPoint Partners, LLC
FocalPoint is an independent investment bank specializing in mergers and acquisitions, private placements, financial restructurings, and special situation transactions. Since 2002, the firm has provided advisory services to middle market clients in eight industry sectors: aerospace and defense, business services, consumer, energy, financial services, healthcare, industrials, and technology/media. With offices in Los Angeles, Chicago, New York, and Shanghai, and affiliated partner offices around the world, FocalPoint’s domestic and international coverage is truly global. Visit focalpointllc.com and follow us on LinkedIn and Twitter.