Private Debt

CHAPTER 1Overview of US Middle Market Corporate Direct Lending

This book focuses on the investment opportunity in US middle market corporate direct lending (or direct loans), a large and rapidly growing segment of the global private debt market. Direct loans are illiquid (nontraded) loans made to US middle market companies, generally with annual earnings before interest, taxes, depreciation, and amortization (EBITDA) ranging from $10 million to $100 million. These middle‐market corporate borrowers are of an equivalent size to those companies found in the Russell 2000 Index of medium and small stocks but, in aggregate, they represent a much larger part of the US economy compared to the Index. The US corporate middle market includes nearly 200,000 individual businesses representing one‐third of private sector gross domestic product GDP and employing approximately 48 million people.¹

Exhibit 1.1 illustrates where direct corporate lending fits within the multiple sources of long‐term debt financing provided to US companies as of December 31, 2017. Long‐term debt financing to US companies totaled approximately $10 trillion. By comparison, equity financing to US companies totaled approximately $24 trillion.²

EXHIBIT 1.1 Breakdown of the $10 trillion US corporate debt market.^a

Traded, investment‐grade bonds represent almost one half of corporate debt financing, but this debt is ...