Tyler Lindblad
Antares creates alpha for investors by really leveraging our long-standing sponsor relationships and leveraging our portfolio incumbency advantage to generate significant deal flow, and from that deal flow, we're able to select the very best credits. In addition, we have a maintained a disciplined underwriting approach and have had a consistent credit philosophy that we've deployed now for over 25 years. We also leverage our agency position to generate information through the sponsor and through management and through third party information, and that, coupled with the insights from our portfolio management team that has expertise in certain industry segments, enables us to make the best credit decision that we can. And then to the extent that the credit underperforms, we have a credit advisory group, which is a 15-member team that is highly experienced and has bandwidth to generate and execute on bespoke solutions to help us to maximize our recoveries.
When you look at the private markets, usually these bank groups consist of a smaller group of lenders. These lenders are usually aligned from a perspective of that their relationship lenders, they're in the same security, and they have the same cost basis, and therefore that generates more of an alignment which enables those lenders to think about solutions that really are more win-win and are constructive for all parties in the capital structure. It also facilitates getting consensus on those 100% issues, which can otherwise be difficult. When you think about the large, you know, the BSL market, those bank groups are significantly larger. Those bank group members are really more transactional in nature. They may even have a different cost basis because lenders trade in and out of deals in the in the larger market, and this causes different motivations from a restructuring perspective. That is also complicated by the fact that the documentation in large cap deals is very flexible and enables the borrower to obtain other types of sources of cash outside of the bank credit facilities. And therefore, what happens is the lenders in that type of situation get to the restructuring table later in the game, and the cost to drive consensus is higher and frequently must be done in bankruptcy.
So, I think the industries that both PE and private credit kind of look for and are in general alignment are those industries where they're experiencing growth, there's recurring revenues and demand is not really tied to cyclical elements. So, when I think about companies like software, business services, consumer services, companies that are in maintenance and repair – those sectors right now, I think are in favor, as opposed to those industries where you don't have pricing power or where you're dependent on people, and there isn't really an alignment of interest, I think sponsors are really starting and private credit are avoiding those industries. So, think about physician practice managements, where it's very difficult to get the doctors aligned with the management team. And we've seen underperformance in that in that area, so increased scrutiny for sure from both a PE and private credit perspective.
Well, I think a Broadly Syndicated Market now that's really starting to perform and is much healthier really means that you're starting to see, and I think you're going to continue to see, compression in spreads, particularly in the upper end of the middle market and the lower end of the BSL market. That being said, I don't think you're going to see the same level of compression in core middle market. I would say a healthy performing BSL market really is a good thing. It means that markets in general are healthy and the overall financial system is sound, which should enable M&A activity to pick up, which will benefit everybody. The public market volatility is something that we've seen historically, expect to see it on a continued basis, and this is why sponsors do favor direct lending solutions that provide certainty of execution and speed.