Yield isn’t found. It’s built.

We use our credit expertise and market-leading position to provide investors unique access to attractive investment opportunities in senior secured loans. Our presence across all distribution channels means we are always active in the market and able to get an early look at attractive primary and secondary opportunities. Finally, our private-side orientation gives our analytical team an information advantage and edge in credit evaluation and execution relative to competitors.

What benefits can senior loans bring?

Senior loans could offer a combination of appealing characteristics across a range of market environments:

• High income: Senior loans offer the potential for consistent monthly income and strong risk-adjusted returns. The goal is to provide high, stable income throughout all market environments.

• Floating rate feature: Loans have virtually no interest rate risk and instead benefit from rising rates through coupons resetting higher. 

• Compelling relative value: Senior loans could offer one of the favorable yields across fixed income, as well as having almost no duration risk and being senior secured in the capital structure.

• Diversification potential: Senior loans have a low correlation with traditional assets like equities and bonds. Historically, adding loans to an investment grade portfolio has reduced portfolio volatility and increased returns. Past performance is not the guide to future returns.

• Senior secured status: Loans provide downside risk mitigation by being senior secured and sitting at the top of the capital structure. They have the first priority on company collateral and repayment in the event of default. This has led to higher recovery rates than subordinated debt, such as high-yield bonds. 

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 (Earnings Before Interest, Taxes, Depreciation, and Amortization) 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.

Unlike traditional large-cap distressed strategies that are often dependent on market cycles, recessions or sector-specific shocks, we focus on idiosyncratic or company specific opportunities. We use our proprietary sourcing mechanism, rigorous diligence and an active approach to value creation to develop a differentiated, complementary and diversified portfolio.

The opportunity

Exceptional distressed credit and special situations managers are not just great stewards of investor capital – they are also strong partners for businesses. At our core, we are problem solvers and value-creators. We aim to help companies transition from challenging periods to ones of growth.

Our approach

Across our investments, we target asymmetric return profiles. We seek to generate equity-like returns while assuming credit downside risk. The following themes define our approach:

• Downside mitigation: We typically enter investments via senior secured debt. This approach allows for risk mitigation.

• Value creation: We are proactive investors. Prior to investing, we concentrate on identifying the cause of distress and clear catalysts to resolution. We then partner with our portfolio companies and their management teams to effectuate financial and operational restructuring.

• Inefficient markets: We focus on small-capitalisation companies. The opportunity set in this market is evergreen. Smaller businesses are more prone to idiosyncratic issues, which occur independent of market cycles. Information access to those without a platform, such as ours, is typically opaque, and therefore, these markets are highly inefficient and can present excellent value.

• Enhanced due diligence: We employ private equity-style diligence in sectors and situations where we have a deep understanding of the business, industry, and path forward to stabilisation and monetisation. The process is augmented with insights and connectivity from our platform’s credit analyst team, which is one of the largest sector-based research teams in the private credit marketplace.

• Sourcing: Our private credit platform is one of the largest and most active financiers of corporate loans in the world. We use our entirely private-side orientation and extensive institutional connectivity with existing borrowers to maintain a vast radar of opportunities across the market.