Direct Lending Defined: Direct lending is a segment within private debt focused on providing first-lien loans to businesses with less than $200 million of EBITDA. Direct lenders are non-bank creditors that extend loans directly to businesses without the use of an intermediary like an investment bank.

The Market Scope: With over 200,000 middle-market businesses in the US, there's ample opportunity for investors. This diverse market offers various avenues suited to different risk profiles and strategies.

Market Dynamics: Several factors contribute to the appeal of middle market direct lending

• Increasing sponsor activity

• Elongated private-to-public business lifecycle shifts business capital sourcing from equity to lenders

• Withdrawal of commercial banks and other conventional financing sources from the market

• Direct lenders continue to benefit from higher base rates as senior secured loans produce yields at 11-13% or more

Why It Matters: Understanding direct lending offers insight into a growing sector of private debt financing and the opportunity to explore alternative sources of attractive risk-adjusted returns in today’s rate environment.