This space has covered at length the investor-friendly changes in senior debt terms since the Fed began its rate hiking regime in March 2022. We recently spent time speaking with junior capital providers about the state of mezz terms today.

“Junior capital spreads have widened out 50 to 100 bps from the end of last year to the end of the first half of 2023,” a top NYC manager told us. “At the same time leverage has declined one-quarter to one-half a turn of Ebitda. That’s a similar dynamic to what we’ve seen in the senior debt market. It’s simply a function of how much debt borrowers can handle.”

How about equity cushions in new LBOs? “Purchase price multiples are still elevated,” another manager reported. “Cash equity percentages have remained healthy, even rising slightly as sponsors have focused on prudently capitalizing businesses in the face of rising rates.”