Beyond structural pressures, liquidity mismatches, and conflation with large cap strategies, the most fundamental question for any credit investor: What is the actual risk of losing money?

Structural protections are built into core middle market (CMM) loans because they are illiquid and intended to be held to maturity. Unlike large cap cov-lite deals, CMM loans have financial covenants testing borrowers’ ongoing performance, meaning that lenders get early warning and intervention rights before the asset reaches the point of impairment.

Lower leverage is also a critical defense. When a borrower is capitalized with more equity and less debt, the distance between the enterprise value and the debt stack is larger. That equity cushion absorbs losses first. In a well-structured middle market deal, PE sponsors typically contribute 50 – 60% of the capital structure as equity. They are buying businesses where the valuation is supported by cash flow fundamentals, not multiple expansion or momentum.