Cloud 9fin The case for lower middle market lending
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Nov 27, 2024 Michelle Handy, Chief Investment Officer of Direct Lending at First Eagle Alternative Credit, shares her expertise in lower middle market lending. She discusses the challenges of intensifying competition and a complex macroeconomic landscape. Handy highlights asset-based lending as a promising strategy and emphasizes the critical role of strong sponsor relationships during turbulent times. Additionally, she dives into the nuances of covenant negotiations and the impact of retail capital on the lower middle market, shedding light on investment prospects and risks.
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Lower Middle Market Lending Focus
- First Eagle Alternative Credit focuses on lower middle market lending, often financing first-time private equity acquisitions of businesses.
- They find opportunities within their existing portfolio as sponsors grow acquired businesses, even during slower M&A periods.
Asset-Based Lending Opportunities
- First Eagle also engages in asset-based lending (ABL), secured by borrower assets like receivables, inventory, or intellectual property.
- ABL deal flow can be counter-cyclical, increasing when cash flow volumes are down.
Sponsor Relationships and Stress Management
- First Eagle prioritizes sponsor relationships in their underwriting process, relying on sponsors' expertise and capital during stressful periods.
- They work with sponsors to resolve borrower issues and only take control in rare cases.