The Credit Markets Are Trembling. Another multi-billion dollar debt deal has fallen apart. Downstream effects are inevitable. So what does this mean for middle-market borrowers? 

In this edition: 

  • God’s speed to the Brightspeed deal
  • A new deal launch illustrates the K-shaped debt market
  • Weekly Insight: You’ve Made the Pitch, What Happens Next? (Pt. 1 of 2) 
Market Jitters
The $3.9Bn Brightspeed deal is off. A debt financing package (leveraged loan and HY bond) tied to Apollo’s acquisition of assets from Lumen Technologies has floundered. The deal’s collapse comes on the heels of the Citrix fiasco, where bonds were auctioned at a 16% discount, leading to a $500MM loss for the underwriting banks (additional losses were incurred). 

All of this underscores the trepidation within the debt capital markets. Questions are swirling amongst middle-market lenders as to what (if any) downstream effects will emerge from these larger deals falling through.  

One noticeable impact: lenders are growing more cautious, with many telling us offline that they expect a recession by Q1 2023. That means lenders might indicate interest in a deal, only to pull out months down the road, should the credit committee adjust its approach to the market. 
Key Stat
The rate at which banks would incur losses on the CCC-rated bonds issued as part of the financing for Elon Musk’s takeover of Twitter, according to Bloomberg.
Under the Hood
You've Made the Pitch, What Happens Next? (Pt. 1 of 2)

CAPX recently helped a borrower who lost a meaningful due diligence deposit and a few months of time, when his bank’s credit committee declined his deal at the very last moment.
The borrower believed the process to be going smoothly, until three months down the road, suddenly the lender rejected the deal. It turns out that a large borrower in the lender’s portfolio defaulted on a loan, and the credit committee had grown reluctant to book large new loans to reduce risk concentration. 

No one informed the front-end banker as to this sudden shift in sentiment until the deal was rejected. So, due to forces outside of his control, the borrower had wasted three months of effort and $150,000 on a deal that was doomed from the start. 

The process of obtaining a loan is fraught with uncertainty, especially given current macroeconomic conditions. Unfortunately, this borrower made two critical mistakes…
5 Term Sheets in 5 Weeks
CAPX has launched a $67MM LBO financing. 

An Independent Sponsor engaged CAPX to secure an ABL and Cash Flow TL debt structure. The borrower is a smaller company (under $50MM in revenues) with relatively high capex requirements, while the Independent Sponsor was still finalizing equity sources. Nevertheless, within a week of launching the deal, CAPX secured term sheets for a $37MM ABL and $25MM bifurcated TL. 

We have noticed that larger banks and direct lenders are a bit gun-shy over smaller credits. Yet there are plenty of smaller banks and direct lenders with dry powder to deploy, they just need to feel the pressure of competition to encourage them to act quickly. 

As this deal illustrates, CAPX can cultivate that sense of urgency. Our system-generated teaser is instantly distributed to appropriate lenders (matched via the CAPX algorithm), prompting lenders to respond in a timely manner.
Market Chatter
CFOs discuss risk assessment and tolerance in the current (high-risk) climate. 
LA-based companies struggle to obtain financing (a harbinger of things to come?) 
Some are predicting a bond market crash.
Questions are swirling around PE fund performance. 
The growth of Private Credit is explored in this Q&A with prominent lenders. 
The Big Quote
"We are at a very attractive entry point for many investors into private credit, for certain strategies. To the extent that we enter a recession or continue experiencing volatility, there likely will be significant opportunity for managers with flexible mandates."

- Mary Bates
Managing Principal and Private Markets Consultant
Meketa Investment Group
About CAPX
CAPX is an end-to-end digital marketplace that connects middle-market borrowers with bank and non-bank lenders. Our platform helps borrowers instantly expand their lender outreach, ensuring they receive the best terms and lowest cost of capital.  

Our debt experts partner with borrowers to help them understand how lenders evaluate risk, and frame their deal from the lender’s point of view. To learn more, schedule a complimentary consultation