After a two-year hiatus, Randy Schwimmer is back with his weekly e-newsletter covering the middle-market leveraged lending scene. The Lead Left, which debuted last week, is the successor to On the Left, the popular e-newsletter that Schwimmer wrote while he was a senior managing director and head of capital markets at Churchill Financial (acquired by Carlyle Group in 2011). Below sister magazine Buyouts catches up with Schwimmer with five quick questions, to which Schwimmer responded by email.
1) Randy, congratulations on the launch of The Lead Left. Tell us about the history of the publication.
Actually I’ve been publishing some version of this newsletter since 1993, though earlier iterations were for internal use only. At JPMorgan Chase, as head of middle-market syndications, it was helpful to educate our bankers on the market, and publicize their deal successes. One VP proudly told me he’d shown an article I’d written about him to his mother. In 2008, when I was at Churchill Financial, an issue got leaked to a private equity client. When the partner called me, I thought I was in trouble. Turned out he wanted the whole firm added to the distribution list. It took off from there.
2) You have a master’s in English literature from the University of Chicago, but then took a left turn into banking. Does this represent a return to your first love?
Not a return, since I’ve never really left writing. Our industry is not exactly in the forefront of accessible or particularly enjoyable prose. The middle market, being private, is more opaque than equities or fixed income. That lack of transparency hurts liquidity and inhibits new investors. Hence our newsletter’s mission: to educate market players in a no-spin, insightful fashion on the features and benefits of leveraged loans, particularly mid-caps. Think of us as your tour guide in loan land.
3) What do you see as the main themes coursing through the leveraged lending markets right now?
It’s generally variations on too much cash chasing too few deals. But one new sub-theme is emerging as retail cash exits loan mutual funds after a 95-week streak of inflows. Investors believe junk bond funds are a better yield play at the moment, given the Fed’s accommodating stance. That’s created push back on loan spreads. But it’s hard to see any momentum building. There’s just not enough new deal flow.
4) Your commentary for the debut edition of The Lead Left uses words like “froth” and “madness” to describe market conditions in the middle market. In light of that, what advice do you have for participants in senior loans, second lien, unitranche and mezzanine financing?
If you’re an issuer, financing of all flavors has rarely been more affordable or flexible. Deal flow may be light, but once sponsors find the right opportunity, financing options abound. For investors in the asset class, the current market poses more of a challenge. Yields have generally tightened as the economy has improved, with bumps along the way. The best managers, those with experience through multiple cycles, take advantage of those blips. They can invest up and down the capital structure, depending on what the market is offering. And they can wait if necessary. My advice is to be patient.
5) Where would you like to take The Lead Left business over the next few years?
Since I’m essentially operating out of my garage, it’s hard to see beyond the next few weeks. But I think our timing is good. Everyone seems confused by this market, and I doubt that’s changing anytime soon. Providing thought leadership, proprietary data, and one-stop deal and market information will always be core features. Beyond that, we’ll see. Our readers and content partners will help guide where this venture goes. One of our loyal readers put it best: “You speak our language.” That’s a great compliment. If we do a good job of that, the rest will take care of itself.
David M. Toll is editor-in-charge of Reuters Buyouts Magazine. To subscribe to Buyouts, please email Greg.Winterton@ThomsonReuters.com.
Photo courtesy of Randy Schwimmer