Year End Market Update / Early 2024 Outlook

The ~10 year leveraged finance banker in me wanted to write a long form end of year market wrap packed with charts, quantitative detail, and predications headed into 2024.

I’m not convinced it would matter for most Fountain Gate Advisors clients.

The first calendar year of FGA has made clear to me that for founder backed middle market companies, the successful interplay between corporate strategy, capital raising strategy, and process management required to execute a transaction successfully is far more important than the actual ‘market conditions’ for the offering. If the first three factors fit together, there will be lender/investor appetite for the transaction regardless of market conditions.

I do see point in time market conditions, and the shifting landscape for middle market credit overall, being an important overlay for sponsors that are actively evaluating a new platform investment or material add-on.

If a lower middle market sponsor’s core historical relationships are with pro rata banks, the ~30-45 days ahead of a bid date represent a difficult window of time in which to create the right private credit lender relationships from scratch. The assumptions in the investment memo a firm pulls together risks major variances vs. actual terms delivered if the firm isn’t in the private credit market regularly with precisely that transaction size and profile. Fountain Gate Advisors represents an ideal partner to help a PE deal team hit the ground running on both lender relationship and market knowledge dimensions.

With that out of the way, see below for our year-end market update and thoughts on 2024 outlook….

Pro rata: Market feels mixed, in a good way. There are finally some banks that are gearing up to play some offense — but that orientation isn’t shared across the board (others banks are mired in layoffs and focused on risk weighted asset reduction).

Private credit: Heading into 2024 open for business, looking for deals. Competitive landscape getting more crowded, but addressable market getting bigger as awareness of the private credit option grows.

Broadly syndicated/high yield: Active end to the year with the drop in rates. Last TLB reprice of the year touched ‘healthy market’ bottom tick spread for BB risk.

Fountain Gate Advisors is grateful for the clients that have trusted the firm with assignments in our first year. We welcome referrals and introductions as we build on year one momentum in 2024.  Our ideal project profile is advising founder owned and PE backed borrowers on $10MM-$50MM+ debt transactions.
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