Our direct lending team has decades of experience in sourcing, underwriting and executing senior secured loans across US and European markets. Our capabilities have made us a trusted partner to leading deal sponsors seeking capital, and investors seeking compelling risk-adjusted returns.
Direct lending in the US and European markets
Direct origination loans are typically accompanied by an illiquidity premium, offering additional return potential for investing in less liquid assets. This premium can range from 100 to 300 basis points, depending on market conditions.
We believe middle market direct lending can offer investors a compelling opportunity to generate significant income, with the potential for lower volatility than traditional fixed income.
In the US, we focus on the core middle market which we define as companies with EBITDAs between US$20 million and US$75 million. The universe of companies in this segment is highly fragmented and represents a wide range of sectors and industries.
In Europe, our target investments are focused on European upper middle market companies. We believe downside risk can be mitigated by focusing on large stable European borrowers defined as companies with EBITDAs of €50M and above. Given inefficiencies in European financing markets, Invesco sees a structural opportunity to source credit deals through our well-established sponsor relationships.
In both markets, Invesco focuses on first lien senior secured loans.
What are the benefits of middle market direct lending?
Middle market senior secured loans offer structural advantages that have the potential to meaningfully mitigate downside risk.
• Senior position in the capital structure: Middle market senior secured loans sit atop the capital structure and are secured against the assets of the company.
• Limited interest rate risk: Middle market loans are floating rate instruments that mitigate interest rate risk experienced by traditional fixed income.
• Attractive spreads: To compensate investors for the market’s illiquidity and inefficiency, the direct lending asset class generally could provide a yield premium relative to more liquid debt offerings.
• Stability: Direct loans historically exhibit a lower volatility profile relative to traditional fixed income.
Middle market senior secured loans could offer a compelling combination of structural protections and economic advantages - positioned at the top of the capital structure, and designed to mitigate downside risk while delivering attractive, interest rate-resilient returns.