Over the past ten years, the financing community has experienced a sea change in the way leveraged buyouts are financed, most notably in the rapid rise of nonbank lenders as a regular, significant source of financing.
After the financial crisis of 2008, central banks globally sought to stimulate the economy by keeping interest rates extremely low and purchasing trillions of dollars in government and corporate bonds, thereby increasing the amount of readily available capital for investments and financing. This proliferation of debt capital created a space for new, nontraditional players in the leveraged finance marketplace, which previously was the nearly exclusive territory of large regulated banks. At the same time, post-crisis regulation significantly limited the ways that large banks could arrange loans.
Enter the era of nonbank lenders.
A decade ago, nonbank lenders (popularly referred to then as alternative lenders or debt funds) were not always a first resort for borrowers seeking capital to finance their acquisitions. But as traditional banks have become more limited in the types of transactions they fund — choosing to focus on larger transactions with lower leverage ratios — nonbank lenders, with their greater flexibility and higher tolerance for risk, have emerged as major players in the financing landscape. Today, nontraditional lenders service upward of 91 percent of leveraged buyout transactions for the middle market, which is defined as the economic
segment made up of companies with annual revenues between $10 million and $1 billion (where most of the activity currently is recorded), up from only 29 percent in 1994.
Recognizing this trend early, Kramer Levin developed the ambidexterity necessary to represent nonbank lenders, as well as traditional banks, in debt financings. In the past year, our Leveraged Finance team has represented nearly all the traditional banks, including Barclays, Credit Suisse Group AG, Goldman Sachs, Jefferies LLC and JPMorgan Chase & Co., and some of the most active nonbank lenders, such as Antares Capital, Ares Capital NW LLC, The Carlyle Group, HPS Investment Partners LLC, KKR Capital Markets, Oak Tree Capital Management LP and Owl Rock Capital Partners LP, in acquisition finance transactions.