Scott Roberts, president and senior managing partner at Belvedere Direct Lending Advisors LLC, discusses the growth of direct lending in the US and its impact on borrowing. He explores the changing landscape of direct lending across Europe, the US, and Latin America, emphasizing the trend towards private capital and sponsor-driven deals. Roberts also highlights the resilience of direct lending in the face of a potential recession due to lower leverage and better terms.
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Quick takeaways
Direct lending in the United States is growing due to institutional investors seeking better investment opportunities, offering certainty of close and flexibility of capital.
M&A activities play a significant role in the direct lending space, with IT services, healthcare, and recession-resistant businesses driving the activity.
Deep dives
Overview of Direct Lending Environment
The direct lending environment in the United States is experiencing significant growth, driven by institutional investors seeking better investment opportunities. Direct lending has become a preferred option for accessing corporate loans for middle-market companies. The growth in direct lending assets under management is fueled by the shift from traditional bank lending to direct lending, which offers certainty of close and flexibility of capital.
Opportunity for Direct Lenders
The increase in floating interest rates has led to double-digit coupons for many companies. However, direct lenders view this as an opportunity as rates are expected to decrease over time. Despite initially higher coupons, direct lending provides middle-market companies with the financing they need to achieve corporate goals, such as LBOs or M&A. Companies value the certainty of close and flexibility of capital offered by direct lenders.
M&A as a Driver of Direct Lending
M&A activities play a significant role in direct lending, accounting for a large portion of overall volume. Direct lenders are well-positioned to help finance LBOs and bolt-on acquisitions, providing flexible capital based on long-term relationships. Sectors such as IT services, healthcare, and recession-resistant businesses like business services and education are driving M&A activity in the direct lending space.
The Reorg Primary View: Reorg’s Patrick Fitzgerald speaks with Scott Roberts, president and senior managing partner at Belvedere Direct Lending Advisors LLC, about the state of the direct lending environment in the US, how it compares with with Europe and Latin America, and how a potential recession could impact direct lending activity.
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