Middle Market Debt Weekly: Fed Hikes, 10-Year Treasury Hovers Near 5.3%

The week’s asset-based lending story was one of tightening spreads and lender priority. Power Solutions International closed a $220 million committed ABL at SOFR plus 180 basis points—replacing a $135 million facility that priced at SOFR plus 260—while Itafos extended its ABL to 2029 alongside a term loan upsized to $140 million with the margin cut by 75 basis points.^1,2 At the other end of the credit spectrum, Leslie’s, Inc. filed Chapter 11 with its existing ABL lenders committing a $225 million DIP ABL, a reminder that the first-lien revolver sits atop the capital structure even as $685 million of term debt is erased.³

The macro backdrop is less forgiving. The Federal Reserve raised the target range to 3.75%–4.00% on September 16—its first hike since July 2023—and the August PCE print released September 30 came in cooler than expected at 3.4% headline and 3.0% core, shifting October odds toward a pause.^4,5 But September payrolls rose by only 29,000, the unemployment rate held at 4.2%, and the 10-year Treasury yield pushed to roughly 5.3%.^6,7 For floating-rate middle market borrowers and the lenders that fund them, the week combined stubbornly high base rates with softening labor data—a setting in which borrowing-base discipline and collateral quality matter more than headline spreads.

Power Solutions Prices a $220 Million ABL at SOFR+180 as a Four-Bank Club Replaces Standard Chartered

Power Solutions International (PSI) announced on September 30 a $220 million committed asset-based revolving credit facility maturing September 25, 2029, priced at SOFR plus 1.80% (or an alternate base rate plus a margin). HSBC Bank USA serves as administrative agent, joined by Australia and New Zealand Banking Group, Bank of China (Chicago Branch), and BNP Paribas.¹

The facility replaces PSI’s prior $135 million line with Standard Chartered Bank, which carried a margin of SOFR plus 2.60%. The new deal is therefore roughly 63% larger and 80 basis points tighter, a pricing improvement achieved while the Fed is actively raising rates. CEO Richard Hu called the expansion “an important step in supporting PSI’s continued growth,” and CFO Kenneth Li said it “strengthens our liquidity position and provides additional financial flexibility.”¹

For asset-based lenders, the transaction is a data point on competitive intensity: a foreign-bank club was willing to both upsize commitments and compress the spread in a rising-rate tape. Market participants should expect incumbent lenders to defend relationships on price when borrowers can document clean collateral and stable availability.

Itafos Upsizes Its Term Loan to $140 Million, Cuts the Margin 75 Basis Points and Pushes the ABL to 2029

On September 29, Itafos amended and extended its credit facilities, lifting the term loan commitment from $100 million to $140 million, extending maturity to September 29, 2029, adding a dedicated $30 million letter of credit facility, and reducing the loan margin by 75 basis points. The ABL agreement’s maturity was extended to the same date. RBC Capital Markets is lead arranger and administrative agent, with Texas Capital and PNC Capital Markets as joint lead arrangers.²

Proceeds repay the existing $82.5 million term loan and any outstanding ABL borrowings. Post-closing, the term loan carries a $140 million balance, the ABL is undrawn, and $12.5 million of letters of credit are outstanding. The term loan amortizes at 5% in year one and 10% in years two and three.² CEO David Delaney said the amendment provides “enhanced financial flexibility and liquidity.”²

The structure—a larger term loan taking out the revolver’s drawn balance and leaving the ABL fully available—is a template for borrowers seeking to convert revolver usage into term capital while preserving the borrowing base as undrawn liquidity. Lenders should evaluate how such takeouts change availability-based covenant triggers and the ABL’s role as a back-stop.

Hut 8’s 12-Bank, $1.07 Billion Secured Revolver at SOFR+175 and Agfa’s Pledge-Backed Extension Show Where Bank Capacity Is Flowing

Hut 8 announced on September 28 a $1.07 billion, four-year senior secured revolving credit facility led by J.P. Morgan as lead arranger, bookrunner and administrative agent, with Citi, Goldman Sachs and Morgan Stanley as joint lead arrangers and a 12-lender syndicate. Pricing ranges from SOFR plus 150 to 200 basis points based on debt-to-market-capitalization, with an initial margin of SOFR plus 175. The facility supports development of the River Bend and Beacon Point data center campuses and reduces cash-collateral postings; CFO Sean Glennan described it as “more than $1 billion of committed, non-dilutive bank liquidity at the parent level.”⁸

In Europe, Agfa-Gevaert extended its €180 million revolving credit facility from August 2028 to August 1, 2030 with a four-bank club (BNP Paribas Fortis, KBC, Belfius and ING Belgium). The extension adds a pledge of Agfa HealthCare shares as collateral and carries maintenance tests of maximum net leverage of 3.0x, minimum interest coverage of 4.0x and minimum liquidity headroom of €30 million.⁹

Both deals show banks extending capacity against identifiable collateral—project-linked assets in one case, an equity pledge in the other—rather than on unsecured credit. For ABL lenders, the lesson is that bank groups are willing to lend large amounts when security is specific and monitorable, which raises the bar on documentation and reporting for asset-based borrowers competing for the same dollars.

Merchant Financial Takes Out M&T on a $6 Million Orbit International ABL as Equity Fills the Gap

Orbit International closed on October 2 a revolving line of credit of up to $6 million, subject to borrowing-base availability, with Merchant Financial Corporation. Approximately $4.54 million was drawn at closing to repay the company’s prior M&T Bank credit line.¹⁰

Concurrently, Orbit completed a $4.075 million private placement of 1,630,000 shares at $2.50, led by its largest shareholder, Elkhorn Partners. Proceeds are earmarked for working capital, litigation expenses, debt reduction and growth. CEO Mitchell Binder said the proceeds, “combined with the additional borrowing availability under our line of credit,” have “substantially enhanced our liquidity.”¹⁰ Pricing was not disclosed.

The transaction illustrates the lower-middle-market pattern of a bank line being refinanced by an independent asset-based lender when a borrower’s profile calls for more flexible availability—paired with a shareholder-led equity raise that supports the collateral base. For independent ABL shops, such bank-to-nonbank takeouts remain a core source of new originations.

Leslie’s Files Chapter 11 with a $225 Million DIP ABL from Existing Lenders—and a 90% Term Debt Haircut

Pool-supplies retailer Leslie’s, Inc. filed voluntary Chapter 11 petitions in the Southern District of Texas this week with a prearranged restructuring support agreement backed by about 81% of term loan claims. The plan would eliminate more than $685 million of funded debt—roughly 90% of the total—close about 76 stores and one distribution center, and target emergence within about 110 days.^3,11 Reports differ on the exact petition date (September 30 versus October 2); the capital structure and terms are consistent across sources.

The prepetition structure shows how the waterfall worked: roughly $30 million was drawn on a $250 million ABL commitment (maturing April 2029), against about $757 million outstanding on the term loan (maturing March 2028), for total prepetition debt of $787 million. The DIP package totals $315 million: a $90 million DIP term loan priced at Term SOFR plus 6.50% with a 9.5% upfront premium and 7.5% backstop premium, and a $225 million DIP ABL provided by the existing ABL lenders that rolls the $30 million prepetition borrowings. Term lenders receive 10% of new common equity, general unsecured creditors share a $500,000 cash pool, and existing equity receives nothing.¹¹

The ABL lenders—secured by receivables, inventory and other current assets—are rolled into a larger DIP facility, while the term lenders absorb the loss. For secured lenders, the case underlines the value of first-priority liens on liquid collateral, tight borrowing-base reporting through the pre-filing period, and the pricing gap between a performing ABL at roughly SOFR plus 180 (as at PSI this week) and rescue financing at SOFR plus 650 plus fees.

Fed at 3.75%–4.00% After First Hike Since 2023; Cooler PCE and a 29,000-Job Print Tilt October Toward a Pause

The FOMC voted 12–0 on September 16 to raise the target range by 25 basis points to 3.75%–4.00%, and the median projection implies a year-end rate of 4.1%, or one more hike.⁴ The August PCE report on September 30 showed headline PCE up 0.3% on the month and 3.4% year over year (versus 3.7% expected) and core PCE up 0.2% and 3.0% (versus 3.3% expected). After the release, CME FedWatch showed a 65.1% probability of a hold at the October 27–28 meeting versus 34.9% for another hike.⁵ Fifth Third’s Bill Adams cautioned that inflation looks closer to target “because of how inflation is measured, not how it’s trending”; the BEA also updated how three price categories are measured, and second-quarter GDP was revised up to 2.2% from 1.5%.^5,12 New York Fed President John Williams said there is “no need for urgency” after the September hike.^12,7

The September employment report then showed payrolls up just 29,000, the unemployment rate at 4.2%, and average hourly earnings up 3.0% year over year. July was revised to a loss of 10,000 jobs (from +21,000) and August to +133,000 (from +162,000); financial-activities employment fell by 7,000 and has declined by 129,000 since May 2025.⁶

For the week, the S&P 500 fell about 0.3%, the Dow about 1.3%, and the Nasdaq rose about 0.5%, with only 34% of S&P 500 stocks closing higher.^13,14 Treasury yields remained elevated: the 10-year closed Friday near 5.28%, up 4 basis points on the day, with the VIX at 15.3.¹⁵ For floating-rate middle market borrowers, base rates near 4% and a 10-year above 5% keep interest-coverage pressure on leveraged balance sheets even as the data soften.

SEC Puts Private Credit Valuation on Notice and Proposes Interval-Fund and Performance-Fee Changes

On September 29, the SEC’s Chief Accountant and the Director of the Division of Investment Management issued a joint statement stressing rigorous valuation and transparent disclosure for private credit, noting that private credit investment within registered fund portfolios has grown by nearly 60% over the past five years. The reminders apply to any company with private credit exposure, not only registered funds and BDCs.¹⁶

On September 30, the Commission proposed two rulemakings to widen retail access to private investments. One would let advisers to registered funds and BDCs earn performance fees capped at 20% of net gains; the other would modernize Rule 23c-3 for interval funds—allowing monthly repurchase intervals, deferral of first repurchase offers for up to two years, and a principles-based liquidity standard in place of a 100% liquidity coverage test—and extend multi-class relief to non-traded closed-end funds and BDCs. Comments are due 60 days after Federal Register publication.^17,18,19 Commissioner Mark Uyeda acknowledged that “valuation of illiquid assets remains problematic.”¹⁷

The two actions pull in different directions—looser retail-access rules paired with a valuation-scrutiny reminder—and together they bear on how much retail capital flows into private credit funds that compete with banks and ABL lenders for middle market assets.

Middle Market M&A: Billion-Dollar Deals Close and Launch, but Financing Details Stay Private

Deal flow this week included Long Lake Management’s completed $6.3 billion acquisition of Amex GBT, Hormel Foods’ $1.055 billion purchase of Brakebush Brothers (September 30), AMD’s $8.2 billion acquisition of World Labs (September 29), and an approach by Authentic Brands for Mattel valued above $6 billion. Smaller transactions included Marsh’s purchase of Accel Holdings and Cardinal Infrastructure Group’s acquisition of Allied Paving Contractors, both undisclosed in size.²⁰ Financing details were not publicly disclosed for most of these deals.²⁰

With the Fed on hold-or-hike watch and the 10-year near 5.3%, acquirers and sponsors face higher all-in debt costs, which tends to favor structures with a large ABL component sized to working capital and inventory rather than all-cash-flow leverage. Lenders should watch for ABL and FILO tranches in the financing packages as they emerge.

Items to Discuss in Your Monday Meetings

Reaffirm Collateral Verification and Lien Perfection Discipline. Leslie’s ABL lenders are rolling into a $225 million DIP ABL because their liens on current assets are first-priority and well-documented. Confirm that field exams, inventory appraisals and perfection filings are current on every watch-list credit.
Benchmark Your Pricing Against This Week’s Prints. PSI’s $220 million ABL priced at SOFR plus 180, and Hut 8’s secured revolver opened at SOFR plus 175. Review whether renewals and new-money quotes reflect that tight end of the range for clean credits, and where risk justifies a wider spread.
Stress-Test Availability Under a Higher-for-Longer Rate Path. With the Fed at 3.75%–4.00%, a possible further hike on the table, and the 10-year near 5.3%, run fixed-charge coverage and excess-availability sensitivities on floating-rate borrowers, especially those near springing-covenant thresholds.
Revisit Revolver-to-Term-Loan Takeouts as a Retention Tool. Itafos converted drawn ABL balances into a larger term loan while leaving the revolver undrawn. Consider whether similar structures can protect relationships—and what they do to utilization, fees and covenant triggers.
Track Labor and Financial-Sector Softness in the Portfolio. A 29,000-job September print, downward revisions to prior months and continued losses in financial-activities employment argue for closer attention to receivables aging and dilution in staffing-, services- and finance-adjacent borrowers.

Conclusion

The week’s secured-lending evidence points in two directions that are really one story: capital is plentiful for borrowers with clean, monitorable collateral—PSI’s four-bank club, Itafos’s RBC-led group and Hut 8’s 12-lender syndicate all priced inside or near the tight end of the range—while borrowers that stumble find that the ABL lender is the party that stays whole, as Leslie’s $225 million DIP ABL shows. Layered over that is a macro tape in which the Fed has resumed hiking, inflation data are softening at the margin, labor data are weakening and long yields are near 5.3%. If the October 27–28 FOMC pauses, as markets now lean, the pressure on floating-rate coverage ratios may stabilize; if not, the premium on borrowing-base quality and lender discipline will only grow.

Footnotes