For thousands of middle-market companies with debt below $100 million, the borrower-lender relationship involves a relatively simple capital structure, with a bank loan secured by a first lien and a mix of preferred and common equity. Such middle-market bank loans typically involve one lead bank, which may partner with a few other banks, and are illiquid investments that are not traded like broadly syndicated leveraged loans for larger borrowers. Middle-market borrowers are typically owner-operated family businesses or portfolio companies of private equity sponsors. Therefore, upon default, neither the lenders nor the owners can readily exit their investment in these private companies, so they must find a negotiated resolution to avoid bankruptcy.
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