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In early 2020, just before Covid came crashing down on our heads, we were in the middle of a Lead Left series called “Ten Top Myths About Private Credit”. Myth #5, published on February 20, was “No one uses mezzanine debt anymore.”
We felt compelled, after a decade of increasingly aggressive senior and unitranche financings, to point out how private equity sponsors had never stopped using junior debt as “patient capital” to help stretch leverage and provide a cushion to banks and other senior lenders.
The near-term environment offers many opportunities for both investors and issuers. Our team expects junior capital coupons to remain at or above current levels: “We want to make sure there’s an adequate spread relative to senior rates. We also think leverage will stay at these levels as recession concerns linger.”...
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