5 questions with Ryan Clark

San Francisco-based Genstar Capital late last month announced that it has helped launch MidCap Financial, a commercial finance company to focus on middle-market lending to health care companies. The new company will be run by several former senior managers of Merrill Lynch Capital Healthcare Finance, including Howard Widra, who will serve as CEO. MidCap Financial has secured $500 million in equity commitments from Genstar, Lee Equity Partners and Moelis Capital Partners.

PE Week Editor-at-Large Dan Primack spoke with Ryan Clark, partner of Genstar Capital, about the firm’s launch of MidCap Financial

Q: Is this a health care or financial services play?


It’s both. Over 50% of our investments have been in the health care and life sciences area, which is how we met the MidCap management team. They’ve worked on the leveraged lending side with us for years, on deals such as OnCure Medical. When GE said it was buying Merrill Lynch Capital, we approached the team and said we’d love to become their partner.

On the financial services side, I’ve been leading an effort in insurance. We’ve done a brokerage and an underwriter for the settlement industry.

Q: How did this transaction get sourced?

A: As I said, we talked to this team all the time and asked them to keep us posted. When the GE deal was announced, they went out and wanted to raise $500 million. They hired Moelis, which led to us meeting Tom Lee. We also were brought in as part of that process, because of the interest we had previously expressed.

Q: The announcement talked about $500 million in capital commitments. Is that a floor or a ceiling?


That’s enough capital for the whole business plan. If it exceeds that number, I’d think that we and the other investors would be willing and able to provide it.

Q: How difficult is it right now for health care companies to secure commercial loans?


It’s extremely difficult, and therein is the opportunity for MidCap. We’d normally have a stable of four to six lenders that our portfolio companies would go to, but they’re just not there right now. Some of your traditional banks have pulled back from the middle-markets, while you’ve also got others, like CIT Group, announce that they’re not making loans for a little while. MidCap, though, can lend because it has capital without those legacy issues.

Q: Is this a deal you would have done 12 to 24 months ago, before the credit crunch was so widespread?


We wouldn’t have done any commercial lending deal—last year or today—if we didn’t have this team and know that they’re the best in their industry. So it’s really a confluence of the team and the opportunity. But it’s perhaps true that we might not have done this deal, even with this team, were we still in the lending environment of 2006.