How middle-market companies are landing capital

As chief financial and strategy officer for the Americas at Mitsubishi UFG, one of the world’s 10 largest banks, Mark Thumser knows about deals of all sizes. He shared his perspective with us on what the financing landscape looks like for middle-market companies, what kinds of financing deals are getting done, and when it might be wise for a middle-market firm to opt for bank financing over private credit.

This interview has been edited for length and clarity.

Are you seeing middle-market companies hold back on new projects due to macroeconomic uncertainty?

There have been some instances where projects are paused or where timelines are extending and being delayed. I do think there’s uncertainty with the rates. Maybe six months ago, the rate forecast would have said there’s going to be two or three rate cuts this year. Right now, it looks like there’s zero. That’s going to make financing costs more expensive. It’s going to put a little more pressure on cash flows, and depending on what industry they’re in, if they’re exposed to energy commodity prices, of course, they’re going to adjust the timing on some of those deals.

But we look through the near-term uncertainty and choppiness, and look at the multiyear trends. I still think the economy is strong and very resilient. At some point, this situation likely gets resolved in the Middle East, and then there will be some reversion to normal on energy prices…The demand for the energy grid, for LNG [liquid natural gas] facilities, for onshoring and reshoring and diversification of supply chains, [for] AI data center build-out, and frankly, companies deploying AI…I think those trends will continue for several more years.

What does the financing environment look like right now for middle-market companies?

Generally speaking, the environment is strong. There is available capital through private credit, through banks, through capital markets. With that said, the backdrop of geopolitical risk and interest rate risk and uncertainty is out there…The markets are open, but you’ve really got to think about the overall capital structure and the creditworthiness of the borrower. What’s the visibility on cash flow forecasts? What’s the equity cushion underneath the debt that you’re looking to raise? What types of terms and conditions are you willing to trade off against price?

Historically, the regulators tighten up a lot on bank credit lending, particularly post the regional bank crisis a few years ago, right? Debt-to-EBITDA ratios and covenants and things like that are strictly enforced in banking. And it’s good discipline, it’s good hygiene, like we expect to get the money back, and to be able to repay our depositors…If a client is a little less creditworthy, maybe has a little less equity cushion, and is pushing the envelope on debt-to-EBITDA ratio, they may be a better fit for the private credit market.

For banking, we are wide open for business, and our value proposition is that beyond the extension of the credit itself, we do have the ability to grow with a client, to advise them on access and capital markets, to think through the entirety of the capital structure, help them with cash management, help them with working capital using securitization techniques [and] access to global footprint.

What would you tell a CFO at a middle-market company looking to improve their chances of securing capital?

Don’t compete for the last basis point on price. Think about flexibility. Be willing to give a little bit on some of the structure and the terms…That’s going to open up a larger range of potential investors.