East Wind Credit Corner (March 2026)

CREDIT Corner (MARCH 2026)

Managing Director Michael Monte Shares Insights on the Credit Environment for Lower Middle Market Borrowers and Reflects on his Career Journey

Q: How would you describe the state of the debt capital markets? Broadly, the debt capital markets are strong. Lenders, both bank and non-bank, have meaningful capital to put to work. Default rates continue to be low (although subject to much debate about what happens in the next 6-12-24 months), and market activity, particularly in the core and upper middle market, has been dominated by refinancings and repricings. Lenders are eager for new money opportunities, and early signs are 2026 may see a greater volume of M&A-related activity. Drivers of this resurgence include the expectation for further interest rate cuts, coupled with broader macroeconomic clarity. Of course, geopolitical events can cloud lender outlook and risk tolerance. When assessing the state of the debt capital markets, it is important to distinguish not only between bank and non-bank lenders, but also market segments. There are fundamental differences in deal structure between a borrower with $30+ million in EBITDA and one in the lower middle market where East Wind is focused. For example, in terms of financial covenants, lenders may allow a larger borrower to have more “cushion” between projected performance and covenant levels. Similarly, that same larger borrower may be able to command a more lenient mandatory principal amortization schedule. Here in the lower middle market, borrowers can have single digit EBITDA. These credit facilities are appropriately structured for the credit risk associated with smaller companies. Covenant cushions can be tighter, required amortization may be a little heavier, although this where you will see differences in structure between banks and non-banks.

To understand if we are facing a systemic threat, we should first distinguish between the behavior of retail investors in semi-liquid vehicles and the longer-term investment horizon of institutional private credit investors...

CREDIT Corner (MARCH 2026)

Q: What are the biggest shifts you’ve seen in the lending landscape? Without a doubt the biggest shift in the lending landscape has been the rise of non-bank platforms, so-called private credit or direct lending. This has been underway for some time, with a variety of private credit funds firmly established for many years now. However, the 2023 failure of Silicon Valley Bank and follow-on heightened regulatory scrutiny on banks contributed to a flood of new capital into the asset class. This resulted in the formation of many new non-bank lenders, all looking to deploy that capital. During this period, middle market borrowers increasingly looked to private credit for their debt capital needs as many banks tightened their lending standards. However, it was only a matter of time before the banks retaliated, taking back some market share that had been lost to the non-banks. The ability of the banks to offer lower pricing, i.e. borrowing spreads, than the private credit lenders remains a powerful advantage. Interestingly, there are now examples of banks and non-banks “partnering” in a variety of ways: joint ventures or co-lending via shared, off-balance sheet vehicles. The rise of private credit has expanded the financing options available to our clients. Although banks have an inherent pricing advantage over non-banks due to their low cost of capital, borrowers, particularly in the lower middle market, are attracted to private credit for a variety of reasons. Chief amongst these is the ability for private credit lenders to deliver more customized solutions to a borrower’s needs. This flexibility is often seen in the following ways: ability to tolerate higher levels of leverage; reduced amortization requirements; larger commitments and hold levels, often eliminating the need to bring in another lender or lenders; ability to offer PIK interest options; covenant packages that are designed to accommodate growth or restructuring strategies; and certainty of execution. The trade-off? Private credit lenders require higher borrowing spreads! Q: Are private credit alarm bells signaling a repeat of the 2008 crisis? To understand if we are facing a systemic threat, we should first distinguish between the behavior of retail investors in semi-liquid vehicles and the longer-term investment horizon of institutional private credit investors. You have to look at the recent development in the private credit markets

that involves above normal redemption requests being experienced by certain Business Development Companies, or BDCs. These entities represent approximately 25% of the broader private credit direct lending market. BDCs have been attractive “semi-liquid” high yield investment vehicles for individual investors. As interest rates have come down, dividends investors receive from these funds have declined as well. Certain BDCs managed by large asset managers have recently experienced greater than normal redemption requests, particularly from individual investors. Funds experiencing the greatest redemption pressures have meaningful exposure to the software/SaaS sector, driven by concern over AI disruption to tech business models. We believe this is more a reflection of individual investor behavior rather than a systemic problem in private credit, which is still dominated by institutional investors. Retail investor risk aversion, coupled with perceived shifts in a specific sector are driving these recent redemption headlines. While certain funds have been constructed around a particular sector, i.e. software, private credit portfolios more broadly are well diversified in terms of industry and sector. In addition, they generally maintain conservative loan to value ratios, although we are seeing greater scrutiny around the methodology and frequency of these valuation marks. As such, a broader market contagion is unlikely. We expect the private credit markets to remain active, particularly in the lower middle market. Q: When you are advising a company on their capital structure, what are the primary factors you look at first and do those factors look any different in the current environment? We look at many factors to help assess where our clients will receive the best execution. The starting point is usually size of the borrower. In the lower middle market, where EBITDA can be single-digit, non-banks are often more comfortable than traditional banks lending to companies of this size. Other important factors include: use of proceeds (working capital vs growth/acquisitions); industry (cyclical vs non); historical performance and business model. All these factors plus a variety of other elements go into our recommendation for optimal capital structure and market execution. The fundamentals of credit risk underwriting remain valid in today’s environment. However, given the noise in today’s markets, we would emphasize even more the benefits of working with a debt capital partner who has experience in the borrower’s industry.

CREDIT Corner (MARCH 2026)

Q: What is the most common piece of advice you find yourself giving to management looking to raise debt capital? It always comes back to the borrower’s objectives for raising capital, coupled with their risk tolerance. We want our clients to be focused on managing and growing their business, not making decisions driven by covenant compliance. Our job is to understand our client’s business, tailoring the debt solution to enable them to execute their growth strategy. We advise them on selecting the right long term debt partner or partners who will share their vision and support it with the right structure. Q: Switching gears, can you tell us about your career journey? I graduated from Purdue University, having switched majors from Engineering to Finance after deciding not to pursue a career as a US Naval Officer. The NY banks didn’t recruit at Purdue, so I had to go to them! I was fortunate to get a job offer from one of the big NYC money center banks, Manufacturers Hanover Trust. “Manny Hanny”, as it was known back then, ran one of the most respected and comprehensive credit training programs. It was a full year long! My time at Manny Hanny provided me with credit skills which enabled me to grow and gain valuable experience in a variety of relationship management, structuring & underwriting and leveraged finance roles at firms such as First Chicago, NationsBank (merged with BofA) and First Union (later Wells Fargo). Later in my career I worked for the big commercial finance company CIT, as well as super regional banks such as Huntington and Citizens. The rigorous credit training and middle market lending roles early in my career opened a variety of doors, providing me with both managerial as well as senior client coverage opportunities. Q: At East Wind, what is your role and what do you focus on most? At East Wind, I am a Managing Director with origination and execution responsibilities. When I joined East Wind 5 years ago, I had spent a considerable amount of time in my prior firms as an industry specialist. I was covering the Healthcare industry, providing senior debt solutions to both PE sponsor-backed and public companies. My background enabled me to join East Wind

to help build out their industry specialization capabilities. Most of the M&A and capital raising work I do at East Wind has a healthcare focus to it. However, given my debt & lending background, I typically get involved in any client engagement that involves raising debt capital. This is particularly rewarding, as I get to work on transactions spanning a wide range of industries. More specifically, we have had successful debt capital engagements in industries as diverse as live entertainment and legal services. The live entertainment assignment (we advised our client on multiple raises) began during the height of the pandemic. We were retained to raise debt capital for a sponsor-backed platform acquiring a diverse group of live entertainment businesses. Not an easy sell at a time when getting large crowds together was a concern! We completed those assignments with private credit lenders, upsizing the deal over time. Our legal services client maintains its financial statements on a cash basis, something outside the norm for traditional lenders. Nonetheless, we were able to get new lenders comfortable with our client’s business model, resulting in an over-subscribed, 9-figure, multi-bank credit facility which replaced their existing sole lender arrangement.

Q: What do you do for fun? Well, for the last 21 months, I have been having a wonderful time being a new grandfather! Nothing like it; can’t get enough! When I am not busy at East Wind or with my granddaughter, I am a part-time wine educator. In 2019, I decided to take my long-term enjoyment of wine to the next level by creating a website targeting people who like wine but find it intimidating. They would like to learn more but want the process to be approachable and fun. To do this, I created an alter-ego, The Wine Doctor. He lives on my website: www.thewinemd.com, where I have posted easy-to-read (3-4 minute) blogs on different wine topics. I even wrote a little soft cover book (it’s on Amazon) that pulls it all together: Wine Made Easy: Wine 101 for Everyone. As they say, a labor of love!