Traci Alloway

So away from GE, CIT was a big lender in that space.

Even in the aircraft lending space, an organization, ILFC, was owned by AIG.

And the regulators wanted that highly levered, riskier financing out of the systematically important financial institutions.

Right.

Well, speaking of people not realizing some of the history here, it took me an embarrassingly long amount of time to realize that all the stories that I'd written about shadow banking in the aftermath of the 2008 financial crisis were basically private credit.

So one of the places it went was in an area of mezzanine finance.

And again, back in the early days of the LBO market, the sponsors were always looking for ways, how do we fill in the gaps?

We can't get this deal quite across the finish line with the equity we want to put in.

Where do we fill in the gaps?

And there were mezzanine funds and they were hybrids somewhere between

credit lenders, and private equity investors.

So they would take the most junior piece, typically a preferred or subordinated piece of debt, and get a little bit of equity in the form of warrants or something alongside.

So that they were targeting slightly higher return profile than the typical debt guys were, but they weren't going to get the full bang for their buck that the PE guys were getting.

And that lasted for a number of years.

But as the market matured,

The sponsors found that they no longer really needed the Mez guys to the same degree.

They're still around, but ultimately Mez funds were a niche-y kind of product that I think over time has just kind of been squeezed out between the size and scale of the combination of leveraged loans and high-yield bonds and the PE firm's desires to keep as much of the equity economics themselves as they possibly can.

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