BDO Capital Debt Market Update - August

August 2020


The combined July Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM) has steadily increased by more than 15 points in the past three months, returning to levels last seen in early 2020 and late 2019. The combined CMI increased by 4.7 points in July to 55.6, which is roughly where it was in November 2019.

For transactions that manage to close, pricing is also back on track, recovering to levels just shy of pre-pandemic conditions. There are transactions underway, particularly in the lower middle market, but large deals remain limited. The volume of non-syndicated loans reached an all-time high in the first quarter of 2020, as the pandemic began, continuing a trend toward more single-lender, and “club deals”, which are credit facilities provided by a small group of lenders. Lenders have been clamoring for the more attractive yields that can be attained by directly originating loans to small and midsize companies. Business Development Companies (BDCs) generally have been an increasingly important provider of credit to small and midsize companies. For borrowers, a directly originated loan from either a single lender or a small group eliminates the syndication process, which doesn’t typically establish final pricing until close. In addition to higher yields, directly originated loans offer ease in negotiations, such as during amendments, modifications and workouts.