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WHITE PLAINS, N.Y., March 19, 2013 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (Nasdaq:FSC) released its March 2013 newsletter today.
Building the Platform
Investors seemed to shrug off the mandatory spending cuts included in the Budget Control Act of 2011 as equity markets flirted with record highs and credit markets held relatively steady. The stock market appears to be benefiting from a liquidity-driven rally as investors shift from lower risk to higher risk assets. Similar trends are evident in credit markets where broadly-syndicated loan and high yield issuance volumes remain strong with spreads tight. While the middle market is still partially insulated from these broader trends, new sponsor-led M&A activity has been seasonally soft overall. However, a pick-up in activity levels since our fiscal 1Q 2013 earnings call in early February gives us increased confidence that we should have strong originations for the current quarter.
Our ability to find attractive deal flow is due in large part to our established reputation in the middle market, relationships with sponsors, larger balance sheet and structuring capabilities built on the growth in our platform to over 50 employees.
Our underwriting expertise and larger balance sheet enable us to increase our hold size without taking on undue concentration risk. These key differentiators versus certain other lenders and BDCs enable us to generate premium risk-adjusted returns. We are one of a limited number of middle market lenders able to hold unitranche positions in excess of $100 million on our balance sheet, and are currently evaluating several of these opportunities.
Originating larger deals should enable us to create incremental value for our shareholders by structuring large deals into a combination of First-Out First Lien and Last-Out First Lien securities. We are developing relationships with several banks to enable us to sell First-Out First Lien pieces of larger loans. By structuring such transactions, we are able to create securities with a return profile similar to second lien securities, but with the structural protections and rights similar to first lien securities. In our market, these type of hybrid transactions are referred to as "back levered" deals.