July 20, 2022 - The LSTA summer series continued this week with an impressive line-up of sessions. On Monday, LSTA’s Ted Basta and Churchill Asset Management’s Kelli Marti teamed up to compare broadly syndicated loans and private debt. The deal size of loans in the private debt market continues to grow and can be anywhere from $20 million to $2 billion, although there are examples of even larger deals being done using the mega unitranche loan structure. Typically, these loans have up to six lenders in each deal whereas broadly syndicated loans, with deal size exceeding $300-400 million up to $5 billion or more, often have dozens of lenders at least in the syndicate. Direct lending is private debt that is provided to borrowers by unregulated institutions, and the lender(s) typically hold the loan til maturity. Direct lending has historically focused on middle market borrowers for which flexibility beyond that available in syndicated facilities is required. These lenders can offer certainty of closing and terms, with no (or very limited) flex and with fewer lenders, no need for ratings or a marketing process, the speed of execution is generally faster. Direct lending has grown enormously and is now estimated at about $1 trillion. Within the broadly syndicated loan market, the primary source of lending has been the institutional lender base and of that 69% of the demand comes from CLOs. Over the past six months, institutional lending activity has fallen forty percent as the cost of credit has Increased. Although the BSL market is facing the same challenges as all other asset classes, loan returns “lead” the other major asset classes with a negative 4.5% return. For a review of the session, click here for the slides and replay.
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