Direct lenders to private equity-backed middle-market companies are concerned about increased risk from rising interest rates, inflationary pressures and a potential recession. But they’re also enjoying healthy returns in part due to their larger peers moving out of the middle market. Direct lenders to private equity-backed middle-market companies reported record deal flow and capital deployment in 2021, and they were on a similar pace in the first half of 2022.

“For WhiteHorse Capital, a direct lender with $11.8 billion in committed capital, deal flow in 2022 has been robust—at or near all-time highs—from new sponsor-led buyouts and add-on acquisitions, and from recapitalizations for both sponsor-led deals and for companies directly. Compared to just before the pandemic, deal flow is up 60 to 80 percent,” says Pankaj Gupta, president of WhiteHorse U.S.