Late May Market Update [5/24/24]

Quick post on debt markets ahead of Memorial Day weekend.  Our market note on 5/6/24 spoke to overall tone being firm in the credit markets.  This has only become more true over the last three weeks.

There has been a notable deluge of liquid markets issuance from industrials issuers.  Arclin, Sensata, Gates Corp., Michael Baker, V2X, SPX Flow, Trinity Industries, TransDigm, Filtration Group, and Maximus are all credits that are familiar to longtime lev fin market participants.  To see this cohort hit the market at one time tells you that corporate treasurers and private equity sponsors like what the market is offering them in terms of compressed credit spreads, and that the premium credit investors often charge for industrials risk (more cyclically exposed, capital intensive, etc.) in more balanced markets is nowhere to be seen.

The private credit bid away may not be directly influencing decisionmaking for liquid market bellweathers, but is contributing to the overarching phenomenon of demand outstripping supply in the leveraged finance markets.  Credit to John Sage and Carmen Arroyo of Bloomberg for their well-researched article published yesterday, which has a title that says it all… “Private Credit Has Too Much Cash and Not Enough Places to Put It”.  

For the middle market private and sponsor backed companies that comprise Fountain Gate Advisors client base, it is imperative to canvass the private credit market in addition to evaluating term sheets from commercial banks (and realize the two lender types can coexist in the same capital structure).  

We are seeing a decent handful of regional banks across the size spectrum actively investing in growth initiatives, making this a good time to put risk appetite to the test at these institutions.  SouthState’s announcement of their acquisition of McKinney, TX based Independent Bank Group this week a notable example of the Sun Belt bias of most of these expansionary activities from the banks.  

At Fountain Gate, in addition to extremely current market knowledge, we pride ourselves on the ability to deliver exceptional process management and a deep network of lenders and capital sources to our clients.  We are grateful for the clients that have engaged us so far this year to provide integrated advice from capital markets and credit risk-oriented perspectives.  Thank you for keeping us top of mind heading into the summer for contemplated debt transactions where we can be impactful.
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