Audax on the verge of closing $2.25bn sophomore direct lending fund

Many direct lending offerings, including Audax’s, target private equity-backed mid-market deals. Because of its “relative stability,” the strategy is gaining traction in this space, a recent Antares analysis found.

Audax Group, in the market with a seventh flagship buyout offering, also is set to wrap up a second direct lending fund.

The Boston firm is seeking $2.25 billion for Audax Direct Lending Solutions II, materials prepared for Plymouth County Retirement Association said.

The vehicle, which has a $3 billion hard-cap, has raised more than $2 billion, according to Form D documents filed in July. This suggests it may be nearing the cap in a final close anticipated in the fourth quarter.

Audax’s Fund II is the latest of multiple direct lending products to hit the market. Others come from shops like Angelo GordonAntares CapitalFortress Investment GroupGolub CapitalHPS Investment Partners, KKR, Oaktree CapitalRiverside Capital Partners and Sixth Street.

Fundraising is aimed at LP demand for private debt at a time of high inflation and rising rates. Owing to key characteristics, such as floating rates and structural protections, direct lending is expected to outperform other types of credit investments in a rocky market.

Many current offerings, including Audax’s, target private equity-backed mid-market deals in North America. Because of its “relative stability,” direct lending is gaining traction in this space, a recent Antares analysis found. In the first half, it noted, the strategy’s share grew to 70 percent from 56 percent a year earlier.

Audax’s Fund II will originate 45 to 50 unitranche loans for sponsored mid-market companies, PCRA said. These will typically be mature, cash-flow positive businesses operating in a variety of non-cyclical industries.

Facility sizes will range from $50 million to $100 million, with Audax primarily acting as the lead arranger. The vehicle will shoot for a net levered IRR of 11-12 percent and a net unlevered IRR of 8-9 percent.

Fund II made its first investment last year and had committed $548 million to 10 deals as of March, according to PCRA.

Audax’s two most recent credit transactions, announced in September, were unitranche facilities backing Thompson Street Capital Partners’ acquisition of MediaRadar and Madison Dearborn Partners’ acquisition of Unison. It is not known if these are Fund II deals.

Direct lending is a fairly new strategy under Audax Private Debt. Audax Direct Lending Solutions I, closed in 2019 at $1.65 billion, was as of December generating a 17.6 percent levered net IRR and a 9.6 percent unlevered net IRR.

Audax Private Debt’s team is led by president Kevin Magid, co-heads of origination Steve Ruby and Rahman Vahabzadeh, and head of senior debt Mike McGonigle. Since 2000, the platform has invested more than $31 billion in 1,060-plus deals and financed over 270 sponsors.

Even if it does not reach its cap, Audax’s Fund II will contribute to a trend in the private debt market of ever-climbing fund sizes. North American funds averaged a record $1.1 billion in the first half, helping to drive a vigorous $48.2 billion raised, Private Debt Investor reported.

Audax is targeting $4.75 billion for Audax Private Equity Fund VII, Buyouts reported in June. The fund’s predecessor closed in 2018 at $3.5 billion.

The firm declined to provide a comment on this story.