Consolidation and the increasing size of buyout deals has left a void in the senior and mezzanine debt financing market, according to the founders of Churchill Financial Holdings, a New York-based middle market commercial finance company that announced its formation last week. The new group, founded by Bear Sterns Merchant Banking and Churchill Capital, will target private equity firms and other middle market investors.
Churchill Financial has $500 million in committed capital. Half of that comes from Bear Stearns, Churchill Capital, hedge fund DB Zwirn & Co., hedge fund-of-funds Private Advisors and the new firm’s management. Another $250 million comes from a warehouse facility provided by CDC-IXIS. With credit lines in place, Churchill Financial will have access to up to $1.5 billion in funds.
Churchill Financial is the brainchild of CEO Ken Kencel, who joined Churchill Capital last year with the specific goal of starting a finance company that would focus on senior debt. He previously headed leveraged finance at the Royal Bank of Canada (RBC). He also headed Indosuez Capital and is a veteran of Drexel Burnham and Chase Manhattan.
Kencel has been a first-hand witness to investment banks’ migration to larger deals. He left RBC after it moved away from the middle market and towards big buyout deals and other large transactions.
Churchill Capital President and CEO Mike Hahn says that private equity firms have been losing out as a result. “There has clearly been a void left by banks consolidating and lending on a more conservative basis,” he says. “Private equity firms have had to contribute more equity than they probably would like and are getting less senior debt than they deserve. There has been a gap for some time and we don’t see that changing.”