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The Golden Age of Private Credit
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2X4 is the Perfect Dimension
Middle Market Lending has been a highly successful business for select banks for a long time. The banks have traditionally run successful programs based on discipline that is unwavering. Some of the top MML fund managers have emerged from commercial banks over the years as they have strong underwriting skills, structuring loans that meet the rigid requirements established by risk managers and adhering to regulators that won’t compromise on bank lending standards. Marathon Asset Management is lucky to have a highly talented banker leading our MML team.
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MML done well is like your typical Two-by-Four, the standard dimension for lumber that makes for an ideal foundation for house framing due to its strength-to-weight ratio for floors which supports walls and ceilings and a roof. As I track performance across the industry, it is clear that those managers who deviate by taking on excess leverage, allow for loose financial documents/weaker covenants, and don’t properly analyze/understand the true cash flows of a borrower can leave themselves open to greater capital loss. Below is a chart that shows exactly this 2×4 dimension: Interest coverage ratio of 2x and Gross Leverage of ~4x equates to B+/B ratings on average according to S&P. Marathon MML team, led by Curtis Lueker is this quintessential banker.
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Too much leverage + loose terms = too much risk. Every business is different, one size does not fit all, but this basic bar chart below tells an important message.
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Announcing New Data Initiative to Analyze Bankruptcy Costs
Bringing Transparency to the Bankruptcy Process
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Our Take:
The Daily Cost of BK Legal fees Are Increasing.
Are we shocked? No.
Our proprietary analysis supports anecdotal evidence that bankruptcy has gotten more expensive. We will be providing additional analysis in the future to show how other factors affects fees. We hope our database will help make bankruptcy a more efficient forum for all stakeholders.
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Implications of the Purdue Pharma case
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Recent disqualification decisions and conflicts in BK
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Where we are in the credit cycle
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