Options Still Exist in Leveraged Finance Market Despite Macro Headwinds

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Options Still Exist in Leveraged Finance Market Despite Macro Headwinds

In early 2021, SPACs raisedmore funds in one quarter than they had in the entire previous year, and private equity firms were paying all-time record multiples for acquisitions.

A year later, with inflation at a 40-year high and recession fears growing, deal activity is unsurprisingly cooling. Despite these headwinds, significant deals are still getting done, albeit either through the direct lending market or with substantial lenderfriendly concessions.

  • The direct lending market remains strong: Despite broader market volatility, the direct lending market experienced minimal movement in pricing with margins only moving 25 – 50 bps wider.
    • Recent direct lending deals include the $4.5 billion unitranche to finance NPD’s merger with IRI, the $3 billion credit facility backing Thoma Bravo’s acquisition of Anaplan, and the $3.3 billion facility backing Kaseya’s acquisition of Datto
  • Jefferies Credit Partners (“JCP”), our direct lending vehicle, has been incredibly active on the direct lending side.
    • Over the last twelve months JCP has closed ~100 transactions with over 50 sponsors while also building a significant pipeline of near-term investment opportunities.
    • Year-to-date, JCP has doubled the number of direct lending transactions closed compared to the same period in 2021, and we increased capital deployed by more than 200%, with approximately 20 additional transactions in the backlog awaiting closing.
    • In Q2, JCP continued to expand its capital base with ~$2 billion of incremental dry powder raised from third parties, and we have significant fundraising momentum heading into 2H 2022
  • Alternative debt financing packages: As an alternative to issuers opting for the syndicated loan market at much higher rates and OID, Jefferies new IP lending efforts offer early-stage companies the ability to lever their intellectual property at rates that are competitive in today’s market.
    • This financing, backed by insurance policies, is non-dilutive, flexible, and less restrictive than typical venture debt or equity
  • Liquidity Fixes: Jefferies is uniquely positioned to help raise capital during difficult times. As companies are in need of liquidity, Jefferies can efficiently and creatively raise capital.
  • Existing Issuers: With secondary trading levels suppressed, Jefferies can help issuers opportunistically buy back a portion of their debt at deep discounts given the market weakness.