You may have seen Leonard Tannenbaum ringing the opening bell one day last week to start the trading at the New York Stock Exchange. Tannenbaum is president and CEO of the business development company Fifth Street Capital, which raised more than $140 million when it went public June 18.
The firm, a BDC-turned-lender, also recently celebrated its 10th anniversary. Last week, Erin Griffith, a PE Week contributor, caught up with Tannenbaum to ask him five questions.
Q: Why go public in today’s market?
We think it’s the best time for our products in the last 10 years. The ability to provide our sponsor clients with capital in a capital-constricted market is truly appreciated. There’s a demand for credit and we’re very flexible to sponsors.
Q: Your firm went public in one of the worst IPO markets for financial services in years. How did you manage to overcome market murkiness and complete the offering?
We continually get that question. There were two factors. The first was because of our underwriting team. Goldman Sachs took us as their first BDC, and so that added credibility to the offering. The other underwriters, Wachovia and UBS, were instrumental, as well. There was credibility from some of the major shareholders and the fact that I own about 900,000 shares myself.
Secondly, we had the team in place, a 10-year track record, terrific clients and we’re at the right time to raise money. That offset what was the worst IPO market ever for financials. The two cancelled each other out.
Q: What are the benefits of being a public company?
We are able to support our sponsors with more capital and more flexible capital, and we have the ability to re-up in platform companies that we finance.
Also, being able to provide liquidity and cheaper forms of debt capital when we add credit lines ultimately generates a better return for our shareholders. You can’t get a leverage line being a private entity, but now we have that ability.
Q: How come more mezzanine lenders don’t go public?
Everybody would like to raise permanent capital, but not everyone has the track record. It’s hard to take these companies public because some start as blind pools.
Another disadvantage is that there’s clearly an added cost of being public, and that has to be accounted for in the overall return.
Q: How has the credit crunch impacted Fifth Street Capital’s deal flow and the demand for your firm’s products?
My guess is that equity sponsors, after having been burned by people pulling deals, are willing to get stickier relationships with lending partners and pay a premium for it. Now they realize the value of having a good lending partner.