Direct Lending Solutions for Leveraged Buyouts: Faster Closings, Straighter Terms

1. Executive Brief

Direct lenders—funds that write bilateral or small-club facilities without tapping the syndication market—have become the go-to choice for mid-market buyouts. Their capital comes with a blended coupon that folds senior and junior risk into one line, trimming paperwork and giving sponsors certainty at signing.

2. Why Direct Lending Fits 2025 Buyouts

• Speed. One credit memo, a single loan agreement, and no ratings work cut the timeline by roughly four weeks versus syndicated loans.
• Flexibility. First-out/last-out splits can be syndicated later, so sponsors keep room for bolt-ons without reopening covenants.
• Control. Fewer lenders mean quicker waiver votes when add-back disputes or working-capital swings hit the model.
• No market flex. Pricing is locked at term-sheet execution, shielding the equity cheque from volatility in the leveraged-loan desk.

3. Common Facility Types

4. Pricing Benchmarks

Insurers and pension plans now dominate the first-out sleeve, driving the blended coupon down about 30 bp since 2023. Up-front fees land between 1.5 and 2.0 percent. Soft-call protection sits at six months; call premiums drop from 102 to par over 18 months.

5. Closing Roadmap

1. Indicative term sheet — 72-hour turnaround once the teaser and QOE land.
2. Credit committee — single memo covers senior and junior risk; vote inside ten days.
3. Legal drafting — one LMA-based agreement, first-out waterfall in the schedules.
4. CP clearance — confirm leverage, quality of earnings and permitted acquisition basket.
5. Funding — wire hits escrow two days before completion.

6. Covenant Suite at a Glance

• First-lien leverage test stepping down by 0.25× each year.
• Interest-coverage test at 2.0× with two cure rights.
• Unlimited permitted acquisitions below 2.5× pro-forma leverage.
• Cash-flow sweep above 50 % of excess cash in year one, tapering to 25 % by year three.

7. Where Financely Group Adds Value

Our sponsor-coverage team tracks live price grids across more than forty direct-lending platforms, matching leverage appetite to sector risk. Services include:

• Real-time spread benchmarking against peer deals signed in the last 30 days.
• Negotiation of accordion and delayed-draw capacity inside the opening document set.
• Covenant-case modelling so equity cures never catch the board off guard.
• Optional layering of a super-senior revolver for working capital once the platform scales.

Review sample mandates on Private Debt Arrangement for Sponsors and see equity-kicker mechanics in our Mezzanine Capital Advisory. Acquisition-specific models sit under Business Acquisition Financing Solutions.

8. Risk Checks Before You Sign

• Cash burn — bolt-on plans that hinge on synergies need headroom; run downside leverage at 25 % revenue slippage.
• Interest-rate path — a 150-bp spike lifts cash interest by roughly 12 % on a standard unitranche; hedge at least half the notional.
• Working-capital drag — rising inventory days can crowd the sweep; negotiate a carve-out for funded capex.
• Equity cure terms — wire timing and cap on cure proceeds matter more than headline count of cure rights.

9. Outlook

Direct-lending funds must deploy billions in the next 18 months or return capital. Competitive tension points to 25–50 bp tighter coupons should base rates ease. Sponsors able to present a bolt-on pipeline and a clear hedging policy will secure the quickest closes and the lightest covenant grids.