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Alternative Market Briefing

The mid-market in alternative credit shows signs of maturity

Tuesday, December 11, 2018

Bailey McCann, Opalesque New York:

The middle market for alternative credit is maturing according to delegates at the recent Opalesque Alt-Credit Roundtable and that's creating more overlap with the larger end of the market. Delegates and managers suggest that because of the significant money raised for middle market alternative credit opportunities, it is more likely that there will be a convergence of pricing, leverage and covenants with the broadly syndicated market.

"Today the senior leverage multiples in the middle market and broadly syndicated market have never been closer," said Henry D'Alessandro, Managing Director, Head of Morgan Stanley Credit Partners. "Covenant lite deals in the upper middle market are not unusual today. Private managers with very large pools of capital will disintermediate the lower end of the broadly syndicated market."

Along with the influx of capital and growth of leverage multiples, more middle market credit firms are experimenting with special purpose vehicles to be responsive to investor demands. "It's not just SMAs which have been around for a while," says Jonathan Berger, CEO & CIO of Birch Grove Capital. "What is happening now is the creation of customized vehicles that are aligned with strategies you execute, but which are tailored to specific investor needs." The vehicles can be designed to reflect certain types of exposure or can have customized risk profiles as two examples.

John Steinhardt, Co-CIO & Co-Ma......................

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