Fidelity Investments - Mon, 12/23/2024 - 23:27

Direct Lending: Does borrower size matter?

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David Gaito, CFA, Head of Direct Lending  
Audie Apple, Direct Lending Institutional Portfolio Manager

  • Defaults are generally viewed as a sign of an imminent loss, but not all defaults are the same.
  • Financial covenant defaults protect capital by forcing the borrower back to the negotiating table before a payment is missed.
  • Leverage matters. Larger borrowers generally use more debt in their capital structure, increasing the risk profile of the loan.
  • Financial covenants, combined with lower capital structure leverage, have produced slightly higher returns and narrower dispersion for direct loans in the lower middle market versus the upper middle market.

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About Fidelity Investments

Fidelity Institutional offers investment insights, strategies, and solutions as well as trading and prime brokerage services, to a wide range of wealth management firms, asset managers, and institutional investors. Fidelity’s mission is to strengthen the financial well-being of our customers and deliver better outcomes for the clients and businesses we serve. With an AUA of $11.5 trillion, including discretionary assets of $4.4 trillion as of September 30, 2023, we focus on meeting the unique needs of a diverse set of customers. Privately held for 77 years, Fidelity employs 73,000+ associates who are focused on the long-term success of our customers.

William Johnson     
Head of Institutional Large Market Sales     
William.R.Johnson@fmr.com     
773-454-4100

900 Salem Street 
Smithfield, RI 02917

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