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Smaller Middle Market Turnarounds Join “The Club”

Smaller Middle Market Turnarounds Join “The Club”

A recent report noted that although the current syndicated loan and high-yield debt markets are booming, lower middle-market borrowers and companies in “business turnaround” situations are still having a tough time finding capital.

Businesses able to hang on during an unprecedented recession because of effective management, are now finding they are not a proper fit to access headline leverage in the wider capital markets. These mature businesses with strong asset value and cash flow for deleveraging, are often underappreciated in the high-yield markets.

There are plenty of possible loan sources for would-be borrowers in this dilemma of not having a straight forward financing option, if you do your research.  One increasingly popular  yet often overlooked source includes potential refinancing in the private non-rated club loan market. A club deal is a smaller loan—usually $25–100 million, but as high as $150 million—that is pre-marketed to a group of relationship lenders.

The “club” market has opened up for smaller middle market business turnaround scenarios as a result of the increase in the secondary leverage market after the financial shake up a few years ago. As the senior markets have become more fragmented, competition has increased but has also allowed direct lending funds to further reduce pricing and yield requirements.  On average a bit pricier, a club loan is a viable debt market alternative for businesses not suited to a typical syndicated loan or high-yield bond.

Each company, no matter the size or industry, has a very unique history and specific set of challenges and financing needs.  Finding a lender is not a one-size-fits-all proposition. It is critical to know who is lending and advancing on which asset classes, what type of loans are viable in each case, and how to combine these loans into a hybrid solution if necessary.  In this highly fragmented debt market, why would a company at a critical juncture want to hitch their wagon to one horse?

A third party loan syndicator can be a crucial partner in successful funding.  These third party firms will understand a particular company’s history, circumstances and financing requirements.  Business Capital has a vast network of lending relationships and can look at multiple options and tailor each debt structure to deliver the proper levels of liquidity and funding.  This may mean that a single lender – or type of lender – may only offer a partial solution.  As such, firms like Business Capital can include more than one lender, more than one type of loan and present more than one option to quickly and effectively deliver the optimal financial solution to each client.