More covenant-lite loans are “bleeding down” to the middle market, says Twin Brook Capital Partners co-founder Trevor Clark in this video interview at ACG InterGrowth 2018, in which he discusses the downside of loosening lender protections. “There are clearly some groups out there that haven’t had as much experience lending through a credit crisis. When you look at our team, the senior members have 10, 15, 20 years of experience. It’s been critical to our success.” Twin Brook won Mergers & Acquisitions' M&A Mid-Market Award for 2017 Lender of the Year. For an update on Twin Brook's approach, read our Q&A: Lenders must be active partners, says Twin Brook's Trevor Clark.
SCREENTITLE: Trevor Clark Twin Brook Capital Partners
QUESTION: What trends are at play in lending?
CLARK: In terms of new trends that we’re seeing in the marketplace, this year there’s a couple of interesting things. Re-fi re-cap activity continues to be taking up a larger proportion of the overall market. But we’re also seeing an interesting trend in regards to some of our competitors moving away from just competing in regards to pricing, or structure in terms of the amount of leverage we’re putting on companies, and moving into this new area, maybe doing more covenant-lites giving more or covenant-wide types of transactions, so loosening up some of those historical lender protections, that in the mid-market, maybe was touching the upper part of the marketplace, but wasn’t traditionally bleeding down.
QUESTION: What’s the downside of the covenant-lite loans?
CLARK: There are clearly some groups out there that haven’t had as much experience lending through a credit crisis. So, by giving away some of those covenants, now you’re actually getting brought to the table to deal with a portfolio company that’s not performing when you have a payment default. The number of options you have in that period of time is definitely diminished. So, the question is, what’s the obvious result, in terms of loss, given default situation, when your result is a payment default versus a covenant default.
QUESTION: What makes Twin Brook stand out?
CLARK: When you look at our team in general, the senior members – 10, 15, 20 years of experience – doing just this type of thing, it’s been critical to our success. And I think it’s also led to using that experience of having managed growth in our previous platform and bringing that to bear here.