BDCs Emerge As Middleweight Contenders

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Since the end of the financial crisis in 2009, the leveraged finance business has undergone a significant realignment. Banks, under pressure from Dodd-Frank financial reforms and stepped-up regulatory oversight, have retrenched from making risky cash-flow loans. Credit hedge funds, burned in the downturn by investor redemptions, have turned their attention away from illiquid mid-market loans to favor more tradeable broadly syndicated loan participations.

CLOs, which rebounded strongly in 2012, have shifted the bulk of their portfolios away from risky ‘CCC’ tranches and toward higher-rated credits. Stepping in to fill the void are business development companies, or BDCs, mid-market lenders that have blossomed in ...

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