Overview
During this session, the panelists discussed key considerations for selecting and managing lenders ahead of participating in a debt syndicate, including how to evaluate potential lenders, compare key terms, and choose club members for a given transaction.
Session panelists:
- David Muckey, Director, Martis Capital
- Bradley Patton, Managing Director, Capital Markets, Audax Private Debt
- Dave Welinsky, Managing Director, Capital Markets, Gemspring Capital
- Matt Zikaras, Managing Director, MidCap Financial
- Moderator: Ellen Snare, Partner, McDermott Will & Emery
In Depth
Top takeaways included:
- When managing both complex deal scenarios and broader economic uncertainties, such as the impact of tariffs, strong relationships are essential. Sponsors often lean on relationship lenders and vice versa, and it is critical to be able to engage in candid discussions on priority points with a trusted counterparty.
- Sponsors should consider the following when selecting lending partners:
- The investment thesis. Over the last several years, many sponsors have bolstered existing platforms with add-on acquisitions. If a sponsor is pursuing a roll-up strategy, it should assess the lender group’s willingness and capacity to support future acquisitions with additional financing.
- A strong foot forward. Sponsors often award allocations (and titles) to lenders who are quick to offer the most favorable terms and commit to the largest holds. A thoughtful and prompt grid response is a positive sign to the sponsor that the parties’ interests are aligned and that future negotiations will be efficient and reasonable.
- The level of enthusiasm. Sponsors value the effort and enthusiasm demonstrated by potential lenders through a deal process. Often, even if a lender is not selected to lead a deal, the sponsor may recognize the resources committed and the energy invested by a potential lender and, in turn, ensure that the lender is included in the club or given a first look at a future deal.
- Club dynamics. Lender groups that have a proven track record of effective collaboration bring added stability and productivity to a financing. Sponsors must always consider club dynamics and often prefer to work with lenders who have collectively navigated prior deal processes with ease and efficiency. Sponsors should consider the following when selecting lending partners:
- Lenders can form new relationships with sponsors by:
- Focusing on what matters. Prioritize negotiations on terms that move the needle rather than holding out for minor wins on less impactful points. Offering more sponsor-favorable baskets in exchange for solid liability management transaction protections is typically a very smart trade – and one that sponsors notice.
- Tailoring proposals. Adapt your proposals to align with the sponsor’s strategic objectives for the deal at hand. Whether it’s a roll-up strategy or a heavy cap ex business, showing an understanding of the sponsor’s unique goals and priorities can significantly enhance a lender’s appeal.
- Being flexible on holds and titles. In the early stages of a relationship, consider reducing minimum hold sizes and foregoing title designations in favor of building trust and establishing longer-term goals. Sponsors recognize when lenders are willing to employ a “big picture” approach and be flexible with general institutional preferences.
