BC Partners Thrives in Middle Market Private Credit Despite Uncertainty

In Brief:

Ted Goldthorpe, head of BC Partners Credit, spoke with hosts James Crombie and Arnold Kakuda on Bloomberg's "The Credit Edge" podcast about navigating today's volatile market landscape. Despite recession fears and geopolitical tensions creating dealmaking paralysis, Goldthorpe reveals BC Partners has pivoted to specialized lending segments where competition is less fierce, securing mid-teens returns that significantly outpace traditional private equity performance.

Big Picture Drivers:

• Market paralysis: Political volatility and tariff threats have frozen dealmaking

• Tight spreads: Credit spreads remain tight despite uncertainty, with strong demand

• Supply constraints: Limited deal flow intensifies competition for quality assets

• Higher rates: "Higher for longer" interest rate environment benefits private lenders

Key Topics Covered:

• Middle market definition: Companies with $10-75 million EBITDA; average BC Partners deal size $100-300 million

• Bank displacement: Private credit has replaced banks in middle market lending (94% to 4% market share shift)

• Regional bank retreat: Post-SVB pullback creating opportunities for private credit

• European value: First time in 25 years Europe offers better relative value than US

Key Insights:

• Deal pipeline collapse: M&A activity that looked strong post-election has frozen amid uncertainty

• Reduced leverage: Companies taking less debt due to higher rates (down 1-2 turns over 18 months)

• Sector strategy: BC Partners focuses on healthcare, software, financial services; avoids consumer exposure

• Credit quality: "Credit violence" in broadly syndicated markets hasn't reached middle market yet

By The Numbers:

• Return profile: BC Partners achieving mid-teens returns in specialized segments

• Industry concentration: 85% of private credit goes to about 8 major players

• PIK metrics: BC Partners averages about 8% PIK income vs. some peers at 35%

• Portfolio growth: BC Partners' European investments increased from 4% to 35% in latest fund

Memorable Quotes:

• "When the world is bad, we do really well. I hate to say it." - Ted Goldthorpe

• "Private credit returns are higher than private equity over a one, two and three year basis." - Ted Goldthorpe

• "People always talk about this bubble in private credit. I've heard that for 25 years like there's been a bubble for 25 years in a row that hasn't popped." - Ted Goldthorpe

• "Today you have companies that import pieces from China into Ohio, they assemble them, they send all the pieces down to Tijuana, Mexico, and then re-import them. So now they're subject to two tariffs." - Ted Goldthorpe

The Wrap: While economic and political headwinds have temporarily frozen dealmaking, Goldthorpe remains confident in BC Partners' private credit strategy. The firm's focus on specialized finance and family-owned businesses is generating attractive returns, and as banks retreat from middle-market lending, BC Partners continues to find opportunities despite concerns about market saturation. Goldthorpe believes the current pause is temporary and that certainty, even with tariffs, would revive deal activity.