On a fourteen-hour flight from Seoul, we sat next to the head of a very successful private credit shop. Besides discussing the relative viewing merits of Bohemian Rhapsody versus Saving Private Ryan (there was plenty of time for both, plus X-Men: Days of Future Past), the subject turned to trends in the capital markets.

“By the way,” our friend said, “here’s a topic you should tackle in your newsletter: What’s the difference between senior stretch and unitranche debt? We get that question from investors all time, and I have no idea how to answer it. Would be a real service to the market if you could come up with something.”

That question has indeed bedeviled credit participants, particularly as issuer leverage has risen steadily since well before the financial crisis. Back in the early 2000’s when middle market first-lien (in a mezz or second-lien structure) was 3-ish times debt-to-ebitda, you could “stretch” a senior-only financing to 3.5x, maybe 4.0x.

Over the past seven years, according to Refinitiv LPC data, all-senior midcap leverage for private sponsored club deals rose from 3.4x to 4.2x. During that same period, first-lien leverage (with mezzanine) increased from 3.2x to 4.0x. Similarly, first-lien leverage (with second lien) was up from 3.7x to 4.5x.