1、Portfolio Valuation and Fund Advisory ServicesDirect Lending UpdateFALL 2022IntroductionDear Clients and Friends,Houlihan Lokeys Portfolio Valuation and Fund Advisory Services team is pleased to present the fall 2022 edition of the Direct Lending Update.We have included key trends for more than 100

2、business development companies(BDCs)to help you stay ahead in this constantly evolving industry.We hope you find this update to be informative and that it serves as a valuable resource to you in staying abreast of the market.If there is additional content you would find useful for future updates,ple

3、ase do not hesitate to call or email us with your suggestions.We look forward to staying in touch with you.Regards,Cindy Ma,Ph.D.,CFAManaging DirectorGlobal Head of PortfolioValuation and Fund Advisory Services212.497.7970CMaHL.comTimothy KangDirector212.497.4209TKangHL.comChris Cessna,CPA,CFASenior

4、 Vice President404.495.7022CCessnaHL.comPortfolio Valuation and Fund Advisory Services Contacts 1Key TrendsCompetition among direct lenders was robust going into Q3 2022,keeping pricing on new loans generally flat relative to the first half of 2022.As shown on the following pages,the median pricing

5、for new first lien loans in Q3 2022 was S/L+5.68%,which was only 7bps lower than new loans originated in Q2 2022.The pricing on new loans in part informs the valuation of existing loans in BDC portfolios,which was evident by looking at the Q3 2022 loan values.The weighted average price for performin

6、g first lien loans modestly declined from 98.0%of par to 97.8%of par,as shown on the following pages.The high levels of fundraising for direct lending funds over the past several years have left significant undeployed capital competing for new deals.Going into Q4 2022,we see a continuation of this t

7、rend and would anticipate pricing on new loans to remain relatively stable.One clear distinction we have observed is that the mega loans(loans above$500 million)have experienced some spread widening because there is less capital to take down the deal flow and incremental spread is required to get de

8、als done.There are simply fewer platforms that can write check sizes this large.As a result,major beneficiaries of the slowdown in the broadly syndicated market have been large asset managers with the scale and capital to take on deal sizes at the high end of the direct lending/private credit market

9、.Leverage levels for new deals are coming down in response to rising base rates driving borrower interest costs up and thus reducing net cash flows.With LIBOR nearing 5%,sponsors are now financing leveraged buyouts at lower leverage levels relative to the past 1218 months.According to our proprietar

10、y Private Performing Credit Index(PPCI),the average gross total leverage for portfolio companies stood at 5.1x as of Q3 2022.We generally expect new deals to be originated at leverage levels below this threshold to mitigate,among other things,the deterioration of interest coverage ratios in the curr

11、ent higher base rate environment.For more information regarding the PPCI,please visit the Insights section of HL.com.Interest coverage for loans has been declining due to rising base rates.The average EBITDA-to-interest-expense ratio on newly issued loans declined to 2.8x in Q3 2022 from 3.1x in Q2

12、2022its lowest level since Q3 2019,according to Refinitiv LPCs Middle Market Sponsored Private Deals Analysis.In general,middle-market private companies have not shown significant financial underperformance.However,financial reporting for BDC portfolio companies typically lags by one to two quarters

13、.For example,June financial statements are typically available in September.According to the Golub Capital Middle Market Q3 Report,middle-market private companies have experienced year-over-year revenue growth of 12%and an earnings decline of 2%during the first two months of Q3 2022.At the end of Q3

14、 2022,the nonaccrual percentage for BDC loans,which is an indicator of distress,stood at 1.2%its lowest level over the past several years.For new SOFR loans and existing loans transitioning from LIBOR to SOFR,credit spread adjustments(CSAs)are becoming less common.Over the past several quarters,CSAs

15、 typically ranged from 10bps to 26bps,with this amount meant to bridge the gap between LIBOR and SOFR rates.However,an increasing number of new loans and amendments are being structured with CSAs toward the lower end of the range or without CSAs altogether.Source:Advantage Data,Pitchbook,LCD Comps,R

16、efinitiv.2Fair Value of BDC Portfolios(1)($in millions)Source:Advantage Data.(1)Reflects the fair value for BDC portfolios tracked by Advantage Data.(2)Reflects the total number of investments for all BDCs tracked by Advantage Data.(3)Reflects cost of nonaccrual investments as a percentage of total

17、portfolio cost for BDCs tracked by Advantage Data.(4)Represents the aggregate composition of all BDC portfolios tracked by Advantage Data.Total Number of Investments in BDC Portfolios(2)Nonaccrual Investments as a Percentage of Total Portfolio(3)BDC Portfolio Composition by Seniority Based on Fair V

18、alue(4)$-$50,000$100,000$150,000$200,000$250,000$300,000Q42017Q42018Q12019Q22019Q32019Q42019Q12020Q22020Q32020Q42020Q12021Q22021Q32021Q42021Q12022Q22022Q320222.7%2.6%2.8%2.9%2.7%2.7%2.8%2.6%2.8%4.6%5.3%4.5%2.7%2.7%2.0%1.9%1.5%1.3%1.3%1.2%0%1%2%3%4%5%6%Q4 2017Q1 2018Q2 2018Q3 2018Q4 2018Q1 2019Q2 201

19、9Q3 2019Q4 2019Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021Q3 2021Q4 2021Q1 2022Q2 2022Q3 202205,00010,00015,00020,00025,00030,000Q42017Q42018Q12019Q22019Q32019Q42019Q12020Q22020Q32020Q42020Q12021Q22021Q32021Q42021Q12022Q22022Q3202268%68%69%68%69%72%72%72%74%73%74%75%77%21%20%19%20%19%17%16%16%14%14%1

20、3%13%12%11%12%13%13%13%12%11%13%12%13%13%12%11%0%20%40%60%80%100%Q32019Q42019Q12020Q22020Q32020Q42020Q12021Q22021Q32021Q42021Q12022Q22022Q32022First LienSecond LienOther3IndustryFirst LienSecond LienBusiness Services10.12%11.82%Financial Institutions10.03%12.26%Consumer,Food,and Retail10.07%11.91%En

21、ergy10.37%11.60%Healthcare10.23%11.67%Industrials10.23%12.38%Real Estate,Lodging,and Leisure9.99%11.77%Technology,Media,and Telecom10.12%13.35%Average First Lien YieldBDC Investment Portfolios(1)Source:Advantage Data.(1)Yield is based off of reported fair value,stated maturity,and stated interest ra

22、te.Represents data for all BDCs tracked by Advantage Data.Excludes outliers.(2)Industry is based upon the industry of each BDC portfolio company and is broken down by aggregate principal for each BDC investment.Industry Breakdown by BDC Portfolio CompanyQ3 2022(2)Average Second Lien YieldBDC Investm

23、ent Portfolios(1)Industry Breakdown by BDC Investment YieldsQ3 20229.45%9.18%8.99%9.47%8.98%8.60%8.32%8.04%7.76%7.82%7.67%7.77%8.71%10.14%7.00%7.50%8.00%8.50%9.00%9.50%10.00%10.50%Q22019Q32019Q42019Q12020Q22020Q32020Q42020Q12021Q22021Q32021Q42021Q12022Q22022Q3202211.31%11.00%10.87%12.13%11.31%10.67%

24、10.15%9.88%9.50%9.28%9.07%9.15%10.45%12.09%8.00%8.50%9.00%9.50%10.00%10.50%11.00%11.50%12.00%12.50%Q22019Q32019Q42019Q12020Q22020Q32020Q42020Q12021Q22021Q32021Q42021Q12022Q22022Q32022Business Services43%Financial Institutions8%Consumer,Food,and Retail6%Energy1%Healthcare9%Industrials22%Real Estate,L

25、odging,and Leisure8%Technology,Media,and Telecom3%4Weighted Average First Lien%of ParBDC Investment Portfolios(1)Source:Advantage Data.(1)Expressed as a percentage of par.Represents data for all BDCs tracked by Advantage Data that filed as of the date of this report.Excludes outliers.The data is mea

26、nt to reflect performing loans only.(2)Represents new loans in each respective quarter from the universe of BDCs tracked by Advantage Data.(3)Ranges represent the 25th,50th,and 75th percentile of new loans for each respective quarter.Excludes outliers.Weighted Average Second Lien%of ParBDC Investmen

27、t Portfolios(1)99.2%98.9%98.8%98.0%97.8%97.0%97.5%98.0%98.5%99.0%99.5%Q3 2021Q4 2021Q1 2022Q2 2022Q3 202299.5%99.3%98.9%96.5%96.3%94.0%95.0%96.0%97.0%98.0%99.0%100.0%Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022Base RateFirst Lien(3)Second Lien(3)Q3 2022SOFR/LIBOR+475 568 635694 775 850Q2 2022SOFR/LIBOR+450 5

28、75 675725 775 850ChangeSOFR/LIBOR+25 (7)(40)(31)0 0 New Loan Pricing(2)5-60.0%-45.0%-30.0%-15.0%0.0%15.0%30.0%45.0%60.0%75.0%90.0%105.0%120.0%135.0%S&P 500S&P 600 FinancialsHigh-Yield Corporate ETF(HYG)S&P BDC IndexSource:Advantage Data,Bloomberg.(1)Represents the principal balance of maturities for

29、 debt securities with a LIBOR component for all BDCs tracked by Advantage Data.Cumulative Total Return(%)as of December 8,2022Maturity of LIBOR-Based Debt Securities for BDC Portfolio Companies by Year(1)(principal in$millions)$-$5,000.00$10,000.00$15,000.00$20,000.00$25,000.00$30,000.00$35,000.00$4

30、0,000.00$45,000.00202220232024202520262027202820291 Year5 YearsS&P 500-1.9%79.7%S&P 600 Financials-9.1%48.4%High-Yield Corporate ETF(HYG)-7.7%11.3%S&P BDC Index7.0%33.9%6Source:S&P Capital IQ.Note:As of December 8,2022.NM refers to not meaningful.ROA=(Net Change in Net Assets+Interest Expense)/Avera

31、ge Net Assets.ROE=Net Change in Net Assets/Average Equity.Publicly Traded BDC Market Snapshot7(Dollars in millions,except per share data)Price/LTMPrice as aMarket Price at52-WkPriceMultiple ofLTMLTMDiv.Debt/Company NameTickerCap.12/8/2022HighChangeNAVROAROEYieldEquityLarge CapAres Capital Corp.ARCC9

32、,811.03$18.96$82%-10.5%1.02x5.9%9.0%10.1%1.3xFS KKR Capital Corp.FSK5,311.50$18.77$80%-10.4%0.74x3.2%2.8%13.5%1.3xOwl Rock Capital Corp.ORCC4,828.27$12.26$80%-13.4%0.83x5.4%7.6%10.8%1.2xBlackstone Secured Lending FundBXSL3,950.42$23.28$61%-31.5%NMNMNMNMNMProspect Capital Corp.PSEC2,858.91$7.19$80%-1

33、4.5%0.72x5.6%6.0%10.0%0.5xMain Street Capital Corp.MAIN2,835.99$36.71$80%-18.2%1.42x8.2%12.5%8.1%1.0 xGolub Capital BDC,Inc.GBDC2,242.15$13.12$81%-15.0%0.88x4.4%6.0%10.1%1.2xHercules Capital,Inc.HTGC1,768.43$13.70$72%-17.4%1.30 x3.6%3.2%14.9%1.1xGoldman Sachs BDC,Inc.GSBD1,493.37$14.53$71%-24.2%0.97

34、x4.0%5.7%12.4%1.4xSixth Street Specialty Lending,Inc.TSLX1,472.28$18.18$75%-22.3%1.11x6.1%8.0%9.5%1.1xOaktree Specialty Lending Corp.OCSL1,278.12$6.97$89%-6.6%1.03x2.9%2.3%10.3%1.1xNew Mountain Finance Corp.NMFC1,277.36$12.66$90%-7.6%0.96x5.9%8.5%10.1%1.5xMean78%-16.0%1.00 x5.0%6.5%10.9%1.15xMid Cap

35、Barings BDC,Inc.BBDC937.04$8.61$76%-21.9%0.76x3.0%1.8%11.1%1.1xBain Capital Specialty Finance,Inc.BCSF836.73$12.96$80%-14.8%0.76x5.4%7.7%11.1%1.2xSLR Investment Corp.SLRC811.73$14.82$76%-19.6%0.81x2.0%0.6%11.1%1.1xMidCap Financial Investment Corp.MFIC793.92$12.13$87%-5.2%0.79x4.2%4.5%11.6%1.5xBlackR

36、ock TCP Capital Corp.TCPC731.33$12.66$87%-6.3%0.90 x6.0%8.7%10.1%1.2xCarlyle Secured Lending,Inc.CGBD717.55$13.97$93%1.7%0.81x7.0%11.4%12.5%1.1xCION Investment Corp.CION563.69$10.17$67%-22.2%0.63x5.3%6.1%12.2%1.0 xCapital Southwest Corp.CSWC576.95$17.84$66%-29.4%1.08x6.7%10.3%12.8%1.3xPennantPark Fl

37、oating Rate Capital Ltd.PFLT515.13$11.36$79%-11.0%0.98x2.8%0.7%10.0%1.3xMean79%-14.3%0.83x4.7%5.8%11.4%1.21xSmall CapFidus Investment Corp.FDUS460.64$18.85$89%4.8%0.97x11.5%17.6%10.6%NMGladstone Investment Corp.GAIN447.01$13.45$78%-21.3%1.01x7.9%9.5%9.8%0.6xTriplePoint Venture Growth BDC Corp.TPVG44

38、6.67$12.66$69%-29.5%1.00 x3.2%1.3%11.7%1.1xCrescent Capital BDC,Inc.CCAP413.27$13.38$69%-24.0%0.66x4.0%4.2%12.3%1.1xPennantPark Investment Corp.PNNT387.43$5.94$74%-14.3%0.66x0.3%-4.0%11.1%1.2xTrinity Capital Inc.TRIN368.23$10.47$52%-40.4%0.76x6.2%6.0%17.2%1.2xGladstone Capital Corp.GLAD346.76$9.87$7

39、7%-14.8%1.09x5.5%6.3%8.5%1.1xHorizon Technology Finance Corp.HRZN344.80$13.06$79%-18.0%1.12x6.0%7.1%10.5%1.2xSaratoga Investment Corp.SAR309.76$26.03$88%-11.4%0.92x4.8%4.9%10.4%1.8xWhiteHorse Finance,Inc.WHF300.07$12.91$80%-16.7%0.87x5.3%6.0%11.4%1.3xBlackRock Capital Investment Corp.BKCC271.42$3.74

40、$85%-6.5%0.82x4.6%4.5%10.7%0.8xStellus Capital Investment Corp.SCM261.72$13.39$94%2.8%0.94x4.3%7.5%10.2%2.2xPortman Ridge Finance Corp.PTMN210.44$21.90$86%-11.6%0.84x0.7%-4.0%12.2%1.4xMonroe Capital Corp.MRCC191.31$8.83$75%-21.3%0.85x2.8%-0.2%11.3%1.3xOxford Square Capital Corp.OXSQ155.92$3.13$71%-2

41、3.3%0.94x-12.6%-30.2%13.4%1.1xMedallion Financial Corp.MFIN151.51$6.83$68%17.8%0.53x4.1%14.4%4.7%5.0 xOFS Capital Corp.OFS140.76$10.51$78%-3.6%0.77x4.4%3.8%11.4%1.9xFirst Eagle Alternative Capital BDC,Inc.FCRD130.16$4.35$91%-2.7%0.85x-4.3%-16.5%10.1%1.4xSuRo Capital Corp.SSSS106.25$3.75$27%-71.0%0.4

42、8x-34.5%-39.9%0.0%0.3xGreat Elm Capital Corp.GECC75.92$9.99$48%-46.0%0.79x-5.6%-31.3%18.0%1.5xPhenixFIN Corp.PFX74.68$34.00$79%-18.7%0.58x-1.5%-5.9%0.0%0.6xSilver Spike Investment Corp.SSIC61.96$9.97$65%NM0.73x1.2%1.2%0.0%NMLogan Ridge Finance Corp.LRFC58.80$21.69$82%-5.7%0.60 x-1.8%-11.6%0.0%NMInve

43、stcorp Credit Management BDC,Inc.ICMB56.98$3.96$69%-20.0%0.61x3.2%1.0%13.1%1.6xRand Capital Corp.RAND37.68$14.60$78%-14.1%0.65x0.1%-0.4%4.1%NMEquus Total Return,Inc.EQS21.90$1.62$60%-31.9%0.60 x0.0%0.0%0.0%NMFirsthand Technology Value Fund,Inc.SVVC7.79$1.13$25%-71.8%0.20 x-78.4%-87.9%0.0%NMMean72%-1

44、9.7%0.77x-2.2%-5.1%8.6%1.42xHigh94%17.8%1.42x11.5%17.6%18.0%4.96xMean75%-17.7%0.84x0.8%-0.3%9.7%1.30 xMedian78%-15.0%0.83x4.1%4.5%10.6%1.21xLow25%-71.8%0.20 x-78.4%-87.9%0.0%0.33xHoulihan Lokeys Portfolio Valuation and Fund Advisory Services practice is a leading advisor to many of the worlds larges

45、t asset managers,who rely on our strong reputation with regulators,auditors,and investors;private company,structured product,and derivative valuation experience;and independent voice.We value illiquid assets on behalf of hundreds of hedge funds,private equity firms,financial institutions,corporation

46、s,and investors.We rapidly mobilize the right team for the job,drawing on our expertise in a wide variety of asset classes and industries along with our real-world transaction experience and market knowledge from our dedicated global Financial and Valuation Advisory business.Our Office LocationsDeri

47、vatives Valuation and Risk ManagementOur Service AreasFund Manager ValuationLIBOR Transition AdvisorySecuritization and Regulatory ComplianceFair Valuation for Financial ReportingFund OpinionsPortfolio Acquisition and Divestiture ServicesStructured Products Valuation AdvisoryValuation Governance and

48、 Best PracticesAbout Portfolio Valuation and Fund Advisory ServicesNorth AmericaEurope and Middle EastAsia-PacificAtlantaBostonChicagoDallasHoustonLos AngelesMiamiMinneapolisNew YorkSan FranciscoWashington,D.C.BeijingFukuokaGurugram Ho Chi Minh City Hong Kong SAR Mumbai Nagoya Osaka ShanghaiSingapor

49、eSydneyTokyoAmsterdamDubaiFrankfurtLondon MadridManchesterMilan Munich ParisStockholm Tel Aviv Zurich8Houlihan Lokey is the trusted advisor to more top decision-makers than any other independent global investment bank.Corporate FinanceFinancial RestructuringFinancial and Valuation AdvisoryNo.1 U.S.M

50、&A AdvisorTop 5 Global M&A AdvisorLeading Capital Markets AdvisorNo.1 Global M&A Fairness Opinion Advisor Over the Past 20 Years1,000+Annual Valuation EngagementsNo.1 Global Restructuring Advisor1,500+Transactions Completed Valued at More Than$3.0 Trillion CollectivelyAwards2021 M&A Advisory Ranking

51、s All U.S.TransactionsAdvisorDeals1Houlihan Lokey3012Goldman Sachs 2853JP Morgan2824Jefferies 1995Morgan Stanley185Source:Refinitiv.2021 Global Distressed Debt&BankruptcyRestructuring RankingsAdvisorDeals1Houlihan Lokey632Rothschild 383Moelis 344PJT Partners335Lazard24Source:Refinitiv.2002 to 2021 G

52、lobal M&A Fairness Advisory RankingsAdvisorDeals1HoulihanLokey9522JP Morgan8903Duff&Phelps,A Kroll Business8824Morgan Stanley6025BofA Securities 531Source:Refinitiv.Announced or completed transactions.9Disclaimer 2022 Houlihan Lokey.All rights reserved.This material may not be reproduced in any form

53、at by any means or redistributed without the prior written consent of Houlihan Lokey.Houlihan Lokey is a trade name for Houlihan Lokey,Inc.,and its subsidiaries and affiliates,which include the following licensed(or,in the case of Singapore,exempt)entities:in(i)the United States:Houlihan Lokey Capit

54、al,Inc.,and Houlihan Lokey Advisors,LLC,each an SEC-registered brokerdealer and member of FINRA(www.finra.org)and SIPC(www.sipc.org)(investment banking services);(ii)Europe:Houlihan Lokey EMEA,LLP,Houlihan Lokey(Corporate Finance)Limited,and Houlihan Lokey UK Limited,authorized and regulated by the

55、U.K.Financial Conduct Authority;Houlihan Lokey(Europe)GmbH,authorized and regulated by the German Federal Financial Supervisory Authority(Bundesanstalt fr Finanzdienstleistungsaufsicht);(iii)the United Arab Emirates,Dubai International Financial Centre(Dubai):Houlihan Lokey(MEA Financial Advisory)Li

56、mited,regulated by the Dubai Financial Services Authority for the provision of advising on financial products,arranging deals in investments,and arranging credit and advising on credit to professional clients only;(iv)Singapore:Houlihan Lokey(Singapore)Private Limited and Houlihan Lokey Advisers Sin

57、gapore Private Limited,each an“exempt corporate finance adviser”able to provide exempt corporate finance advisory services to accredited investors only;(v)Hong Kong SAR:Houlihan Lokey(China)Limited,licensed in Hong Kong by the Securities and Futures Commission to conduct Type 1,4,and 6 regulated act

58、ivities to professional investors only;(vi)India:Houlihan Lokey Advisory(India)Private Limited,registered as an investment adviser with the Securities and Exchange Board of India(registration number INA000001217);and(vii)Australia:Houlihan Lokey(Australia)Pty Limited(ABN 74 601 825 227),a company in

59、corporated in Australia and licensed by the Australian Securities and Investments Commission(AFSL number 474953)in respect of financial services provided to wholesale clients only.In the United Kingdom,European Economic Area(EEA),Dubai,Singapore,Hong Kong,India,and Australia,this communication is di

60、rected to intended recipients,including actual or potential professional clients(UK,EEA,and Dubai),accredited investors(Singapore),professional investors(Hong Kong),and wholesale clients(Australia),respectively.Other persons,such as retail clients,are NOT the intended recipients of our communication

61、s or services and should not act upon this communication.Houlihan Lokey gathers its data from sources it considers reliable;however,it does not guarantee the accuracy or completeness of the information provided within this presentation.The material presented reflects information known to the authors

62、 at the time this presentation was written,and this information is subject to change.Houlihan Lokey makes no representations or warranties,expressed or implied,regarding the accuracy of this material.The views expressed in this material accurately reflect the personal views of the authors regarding

63、the subject securities and issuers and do not necessarily coincide with those of Houlihan Lokey.Officers,directors,and partners in the Houlihan Lokey group of companies may have positions in the securities of the companies discussed.This presentation does not constitute advice or a recommendation,of

64、fer,or solicitation with respect to the securities of any company discussed herein,is not intended to provide information upon which to base an investment decision,and should not be construed as such.Houlihan Lokey or its affiliates may from time to time provide investment banking or related services to these companies.Like all Houlihan Lokey employees,the authors of this presentation receive compensation that is affected by overall firm profitability.10Corporate Finance Financial RestructuringFinancial and Valuation AdvisoryHL.com