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More gain, but more pain: Non-sponsored originators slog a long way to pay day

Posted on November 21, 2019

Direct Lending Deals

WhiteHorse Finance reported an average yield of 11% in the third quarter, a strong level for an 80% first-lien portfolio — albeit down from 11.3% in 2Q19 prior to fed rate cuts. The BDC plays in the lower middle market, but also is one of few that sources a significant amount of deal flow from non-sponsored issuers.

Higher yields are one benefit in this segment —market players say spreads generally start at L+650 and go from there— and so are tighter credit structures. Founder or family-owned companies typically don’t have the market savvy of private equity firms that can sling through multiple deals a month.

Another plus: Non-sponsored mandates are less competitive (even the lower middle market is seeing lenders jockey for on-the-run sponsor business), but that’s because there are a litany of headaches that come with the territory. In fact, many lenders steer clear entirely.

Sourcing and due diligence are among the many hurdles. Underwriting can take as long as…

For access to the rest of this article, contact kelly.thompson@dldeals.com or sign up for a free two-week trial at dldeals.com

 


Direct Lending Deals is the go-to publication for the direct lending market, an area of leveraged finance that has evolved into its own $1 trillion asset class.


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