Weekly Market Summary

Extra Credit^*

• As M&A¹ and buyout activity among larger borrowers has slowed and direct lenders seek investments viewed as more insulated from AI disruption, the lower middle market has remained resilient, providing a steady source of private credit deal flow, according to market participants. That momentum contrasts with the broader direct lending market, where new-loan volume fell to $33.6 billion in the second quarter, the lowest level since Q2 2023.
• Market participants say activity at the smaller end of the private credit market² has proved more resilient than in the upper middle market. The upper middle market competes more directly with the broadly syndicated loan market and has built significant exposure to software companies through aggressive lending in recent years. Definitions of the lower middle market vary, but LCD classifies it as borrowers generating $5 million to $30 million of EBITDA. The core middle market extends to companies with EBITDA of up to $50 million.
• Lower middle market deals are generally pricing at spreads of S+475 to S+525, although more challenging transactions have cleared as wide as S+650 or even S+800. “The outlook for the lower middle market is generally positive,” said Jonathan Cignetti, managing director at Crescent. He attributed the favorable backdrop partly to the aging of private equity portfolios, which is creating pressure for sponsors to pursue exits, refinancings, and other transactions across the lower middle market and private markets more broadly.

Source: Pitchbook LCD. ¹Mergers and Acquisitions refers to the financial processes where companies combine, buy, or sell businesses to each other. ²Private Credit involves non-bank lenders providing loans directly to companies outside of public markets, often with more structural protections.