Capstone Headwaters Reports: Amid COVID-19, Lenders Seek to Add Safety to Loan Portfolios with Higher Quality Borrowers

November 12, 2020

Boston, MA – Capstone Headwaters released its Q3 Middle Market Leveraged Finance Report today with insight on the volume, pricing, and leverage statistics of today’s credit markets.   

Middle market (MM) loan volume recovered modestly in Q3, but nonetheless represented a fraction of historical levels. The rapid roll-out and adoption of government stimulus packages, including the Paycheck Protection Program, somewhat mitigated the initial impact of COVID-19 on loan portfolios.  Still, LCD’s survey of portfolio managers yielded an average anticipated default rate of ~5.3% for 2020 and over 6.0% for the period ending June 30, 2021, a level nearly 400 bps wider than the same survey results at the end of 2019.  This pandemic-induced increase in defaults has caused lenders to rethink the way they amend credit agreements and support distressed borrowers in order to preserve value.   

With COVID-19 disproportionately impacting certain industries, the shift toward higher quality borrowers has increased as lenders seek to add safety to their loan portfolios.  This has exacerbated the bifurcation of the market between the haves and have-nots as issuers with consistent and/or growing cash flows continue to attract new capital while lesser-quality borrowers are often left searching for financing alternatives.   

“While new-loan origination activity was certainly moribund at the onset of the pandemic, the credit markets have started their recovery with significant capital coming off the sidelines beginning in late summer,” said Kent Brown, Head of Capstone’s Debt Advisory Group. “In particular, businesses with recession- and COVID-protected models that have fared reasonably well during the crisis are now finding outsized interest from lenders seeking to deploy capital.  While not yet back to January levels, the market certainly feels better.” 

This strain is particularly felt in the MM where loan terms are decidedly lender-friendly for borrowers with EBITDA of less than $25 million. While lender activity has rebounded for higher quality issuers, pricing and terms among proposals will continue to vary widely as the pandemic and resulting market uncertainty persist. 

To access the full report, click here


Capstone Headwaters is one of the largest and most active independent investment banking firms in the United States.  The firm has a rich 15+ year history of achieving extraordinary results for middle market entrepreneurs, business owners, investors, and creditors.  Capstone offers a fully integrated suite of corporate finance services, including merger & acquisition, debt & equity placement, corporate restructuring, valuation & fairness opinion, financial advisory, and ESOP advisory services.  Headquartered in Boston, the firm has 150+ professionals across 16 offices in the U.S., with and an international presence including over 450 professionals in 40 countries. With 16 dedicated industry groups, the firm delivers sector-specific expertise through large, cross-functional teams on a global basis.  Capstone has been named “U.S. Middle Market Investment Bank of the Year” for the past 9 consecutive years and is consistently recognized as one of the top investment banking firms to work for. For more information, visit

For More Information Contact the Key Report Contributor: 

Kent Brown 
Managing Director & Head of Debt Advisory Services 

Brian Schofield 
Managing Director