January 2020 Monthly Snapshot

January 2020 U.S. DIRECT LENDING SNAPSHOT

The Lower Middle Market bustled in January, LBOs took 50% share

Direct lending deal flow flourished in January, with arrangers closing out 73 transactions, the
vast majority of which are lower middle market in size. (Download deals here: DLD Workbook)

Last month was by far the busiest that Direct Lending Deals has tracked since launching last
September. The count outpaced December by 43%, and by 28% in October, which has the second
highest monthly tally of 57. DL Deal’s current catalog includes roughly 850 issuers.

1 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com

 JANUARY 2020 MONTHLY SNAPSHOT

Large cap M&A business has been thin,

but it’s alive and well downmarket.
Sponsors carried December’s buyout
boom over to January, with LBO/Recap
financing accounting for 50% of the
tally last month.

Lenders expect the buyout streak to run

through 1H2020. Rates remain
attractive for issuers, capital is flowing freely, but the bigger driver is that the uncertainty factor
only escalates closer to the November election.

Direct Lender Activity: Of the 48 lenders tracked last month, Antares Capital took the top
spot, with 9 visible transactions, followed by Churchill and Madison Capital for 7 apiece,
MidCap Financial for 6, NXT Capital at 5, and KKR at 4.

2 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com

 January 2020 Monthly Snapshot

Upmarket, direct lenders chipped away at traditional banking mandates. KKR Capital
Markets/Credit closed on a $405 million refinancing for LionBridge Technologies, a
previously Credit Suisse borrower. The new deal is structured as a unitranche, with KKR Credit
as the lead investor. The credit is priced inside the blended rate of the previous first- (L+550)
and second-lien (L+975) package that was arranged in 2017 to fund the $360 million buyout of
the translation services company by H.I.G. Capital.

Golub Capital led a jumbo unitranche for MRI Software that was more of a hybrid distribution
than true club, yet the deal had several elements of a direct lending loan: it wasn’t rated, Golub
holds a large anchor ticket, and the sponsor, Harvest Partners, had a large hand in guiding
commitments to select lenders. At closing, the credit, which was issued at 99, was upsized to
$1.58 billion from $1.43 billion.

The MRI spread is L+550 with a 1% floor and includes a 25 bps step down tied to leverage that
was included in pricing from the start.

3 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com

 JANUARY 2020 MONTHLY SNAPSHOT

The inclusion of the step to L+525 reflects the downward pricing pressure felt last month as
syndications found firmer footing and reopened for single B issuers. The hugely successful
syndication of Sophos' first- and second-lien LBO loan set a new B3/B- benchmark.

4 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com

 January 2020 Monthly Snapshot

The $1.43 billion first-lien term loan cleared at L+350 at 99.75, after flexing down twice,
according to sources. Including the privately placed second-lien (L+825), blended pricing was
around L+450.

The spread of China’s coronavirus injected fresh volatility late last month and wiped some froth
off syndications for opportunistic plays— two repricings were pulled last week — but equities
have rebounded on fading concerns, tariff cuts by China, and strong earnings and growth
projections this week.

Volatility is a direct lender's best friend, but this episode was cut short. CBOE's VIX Index over
the last five days shows the rally in equities.

5 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com

 JANUARY 2020 MONTHLY SNAPSHOT

Industries
Healthcare and manufacturing were the two most active industries in January, with 10
transactions in each category. Eight retail and retail-related financings closed, and software/IT
booked 7 financings.

Fundraising/Firms

• Ares Credit Group is acquiring a managing interest in a restructured Crestline Denali

Capital that will add seven CLOs to the Ares portfolio totaling $2.6 billion of assets. Ares said
the purchase further strengthens its CLO franchise and adds CLO assets without the
assumption of any debt or headcount.
• Morgan Stanley’s private BDC, Morgan Stanley Direct Lending, is up and running,
having raised $755 million in equity from investors, plus up to $500 million in a subscription
line being provided by CIBC Bank.
• Aflac’s asset management division announced last week that it’s buying certain
partners and affiliates of Oak Hill Capital’s stake in Varagon Capital, a New York-based direct
lender that has a current portfolio of nearly $9 billion.

—Kelly Thompson

6 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com

 January 2020 Monthly Snapshot

CONTACTS:
Editor: Kelly.thompson@dldeals.com

Head of Sales: Pete.juncaj@dldeals.com

125 S. Clark Street, 17th floor, Chicago IL 60603

Direct Lending Deals is the go-to publication for exclusive news and analysis on privately distributed
loans to issuers backed by private equity. We tap into 20-year lending relationships to deliver the latest
terms and trends to originators and investors in direct lending. To set up a trial, contact head of sales,
pete.juncaj@dldeals.com or visit www.dldeals.com.

Special thanks to our collaborators for this report:

LCD offers market-leading real-time news, trend analysis, and data

covering the U.S., European, and global leveraged loan, high yield bond,
distressed debt and corporate markets. LCD info is widely used at
virtually every institution that originates, sells or invests in the global
leveraged finance markets.

SPP Capital is a recognized specialist in structuring and raising private and 144a high yield debt and
equity capital for its corporate and equity sponsor relationships. We have completed over 525
transactions, representing over $24 billion of capital and are the exclusive private financing partner to
some of the largest commercial banking organizations across North America.

7 Copyright 2019. For permission to reprint or redistribute contact editorial: kelly.thompson@dldeals.com