Private equity sponsors have several options when structuring a debt financing. They may partner with a single direct lender, assemble a small club of lenders, or access the broadly syndicated loan (“BSL”) market, where dozens of institutions may participate in a single capital structure.
While each approach can deliver capital, they differ meaningfully in how risk is governed, how information flows, and how effectively lenders and sponsors can respond when conditions change. From a lender’s perspective, the structure selected at origination often shapes not just economics, but outcomes over the full life of the investment.
In a sole lender transaction, the private equity sponsor works with a single financing partner that provides 100% of the debt capital. Sponsors often favor this structure for its simplicity. There is one counterparty, one set of documents, and one decision-maker.
From the lender’s standpoint, being the sole lender enables a highly deliberate underwriting process. Direct access to the sponsor and management team supports a deeper understanding of the business model, cash flow durability, and downside scenarios. That level of diligence is difficult to replicate in multi-lender settings.
Just as important, sole lender structures provide clarity and control throughout the life of the loan. Credit terms, covenant frameworks, and documentation are negotiated directly, without the need to balance competing lender priorities. When performance is strong, this alignment supports efficient execution of add-on acquisitions or incremental financings. When performance weakens, it allows for early, constructive engagement rather than reactive crisis management.
These transactions are typically relationship-driven. Sponsors often partner repeatedly with lenders they trust to be consistent, reliable, and pragmatic across market cycles. This dynamic favors long-tenured managers like PennantPark, where experience and incumbency translate into durable competitive advantages.
The primary limitation of sole lender deals is scale. A single lender’s capital capacity may cap transaction size. When financing needs exceed that capacity, sponsors may turn to a club structure.
Club deals involve multiple lenders participating in a single financing, typically two to four in a disciplined structure. Sponsors may prefer this approach when they want to diversify their debt capital base or preserve additional capacity for future growth initiatives.
For lenders, the size and composition of the club matter greatly. Smaller clubs preserve meaningful influence over credit terms and key decisions, while larger groups often dilute governance rights and complicate decision-making. As voting thresholds increase and consensus becomes harder to achieve, responsiveness can suffer, particularly in periods of stress. For this reason, we prefer to participate in club deals of no more than a handful of like-minded lenders.
Within a club, one lender usually serves as the lead lender or agent. In that role, the lead coordinates communication among lenders, interfaces most directly with the sponsor and management team, and often leads amendments or restructurings. While all lenders retain voting rights, leadership positions provide a more active seat at the table and greater ability to shape outcomes.
Well-constructed club deals can strike a balance between diversification and control, allowing lenders to share risk while still maintaining accountability and transparency.
Broadly syndicated loans are most common at the upper end of the market. They are typically used to finance large companies with transaction sizes that exceed the practical capacity of a single lender or small club. In these situations, banks underwrite the loan and distribute it across a wide base of institutional investors including banks, CLOs, and loan funds.
BSLs are uncommon in the core middle market. Companies with $10 million to $50 million of earnings are generally too small to support the economics of broad syndication, and their frequent need for follow-on capital favors privately negotiated financings with one lender or a small group of lenders.
The BSL market is built for scale and liquidity rather than active governance. Individual lenders typically hold small positions, have limited access to management, and minimal ability to influence documentation. Amendments often require broad consent, which can delay action precisely when speed and coordination matter most.
While syndicated loans can be effective for large, widely followed issuers, the trade-off is reduced transparency and weaker lender control. These limitations are less visible when performance is strong, but they can become meaningful constraints when business conditions deteriorate.
From a lender’s perspective, the choice between sole lender, club, and broadly syndicated structures directly shapes the ability to actively manage risk. At PennantPark, our preference for serving as a sole lender or meaningful role in small club deals reflects a deliberate credit philosophy centered on control and active risk management. These roles provide direct engagement with sponsors and management teams, meaningful influence over documentation, and the flexibility to act decisively as conditions evolve.
Most importantly, they allow us to engage early when financial performance begins to soften, at a point when proactive intervention can still preserve value and protect capital. Through clear governance rights, strong documentation, and consistent access to decision-makers, we maintain greater control over outcomes throughout the life of the investment.
If you’d like to learn more, please contact invest@pennantpark.com or the professionals listed below.
PennantPark was founded in 2007 as an independent middle market credit platform. The firm was founded by Art Penn, a private credit industry veteran that previously co-founded Apollo Investment Management. We have invested over $27 billion across multiple economic and credit cycles since inception, and we manage $10 billion in AUM today.[i] PennantPark serves a broad range of sophisticated investors with product offerings that include business development companies, private capital funds, joint ventures, and other specialized funds.
Our highly experienced team primarily invests in the core middle market, targeting companies with earnings of $10 million to $50 million. These mid-sized companies are often overlooked by banks and large investment managers, resulting in senior secured loans that generally feature higher yields, lower leverage, and stronger lender protections when compared to the upper middle market and broadly syndicated loans. We focus on five key industry verticals where our track record is excellent and where we have the most expertise and experience. These industries include healthcare, government services, business services, consumer, and software & technology.
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