Middle-market deals are still finding lending sources, particularly on the senior debt financing side, says David Brackett, co-CEO of Antares Capital, which focuses on financing transactions for companies with Ebitda below $100 million and is the largest lender in the middle market. But pricing on the senior financing side has crept up over the last two quarters of 2015, typically to Libor plus 5 percent with a 1 percent Libor floor, up from Libor plus 4.5 percent with a 1 percent floor. The availability of financing component on Mergers & Acquisitions' Mid-Market M&A Conditions Index (MACI) was at its lowest level in January since we began our monthly polls in 2013.
The real shift in financing for middle-market deals recently has been felt on the junior debt side. Prospective investors for the traditional middle-market second-lien loans have been attracted to more compelling opportunities elsewhere, Brackett says—high-yield bonds, for example, where relative yields are better because they are trading at deep discounts. That means junior debt investors need more assurance about the relative risks and returns of the deals and sponsors they are financing.