Churchill Ready To Make New Loans Again

Churchill Financial Holdings LLC has changed ownership and received a capital infusion to help the mid-market lender of senior and subordinated debt get back into the business of financing small and mid-market buyouts.

Olympus Partners of Stamford, Conn. acquired Churchill Financial earlier this month from Irving Place Capital, the buyout shop formerly known as Bear Stearns Merchant Banking. The sponsor-to-sponsor transaction, which included the refinancing of Churchill Financial’s holding company debt, was first reported by peHub, a sister Web site of Buyouts.

Paul Rubin, a partner at Olympus Partners, said Churchill Financial “definitely saw an increase in defaults” during the market downturn, but added that the lender’s senior debt portfolio “probably outperformed its peers.” He would not disclose the purchase price of the deal.

Between existing cash, available capacity in its mid-market CLO and the new investment from Olympus Partners, Churchill Financial has approximately $500 million in immediate liquidity to put to work in loans backing sponsored companies with EBITDA of $5 million to $50 million, Rubin said.

According to Churchill Financial’s Web site, commitments from the lender can range from $15 million to $150 million, though Rubin said they could go as high as $200 million. Hold sizes tend to fall between $10 million and $30 million.

Churchill Financial senior managers George Kurteson, head of middle market finance, and Durant “Randy” Schwimmer, head of capital markets, are planning a multi-week road tour to meet with clients in Boston, Chicago, Los Angeles and San Francisco in order to get the word out that the firm is up and running.

During the nadir of the credit crisis, Churchill Financial, like many other lenders, turned most of its attention to investing in large-cap, broadly syndicated loans in the secondary market. The last new deal listed on the lender’s Web site closed in 2008. Its lack of visibility in the origination market during that period helped fuel gossip that it would go out of business. “The rumors of our demise were greatly exaggerated,” Schwimmer said in an interview.

Olympus Partners’s post-acquisition goal for Churchill Financial is for the lender to “hit the ground running,” and, indeed, it is already working on roughly a dozen transactions that are in various stages of approval and commitment, Schwimmer said.

The lender is also looking to hire a small number of junior professionals, but is holding off on bringing in new senior talent until executives get a better sense of how deal flow will shape up. “We want to stay lean and mean for now,” Schwimmer said. Meantime, Churchill Financial is also considering the issuance of a new CLO as soon as next year, he added.

Olympus Partners is no stranger to investing in the debt markets. In April 2008, the firm provided the equity for Neptune Finance CCS, a $275 million CLO created to purchase large-cap, broadly syndicated loans. However, the sponsor was more attracted to the risk-reward profile in mid-market lending, and it jumped at the chance to buy Churchill Financial.

“We’ve been looking at the mid-market lending space ever since the credit dislocation that started in the end of 2007,” said Rubin of Olympus Partners. “Leverage multiples are low relative to historical standards, spreads are wide and there’s a lack of depth in the market.”

Rubin said pricing on senior cash flow loans today ranges from L+450 to L+550, versus L+250 and L+275 in the 2006 to 2007 timeframe. In terms of multiples, senior debt today maxes out at 3.0x to 3.5x EBITDA versus the 5.0x EBITDA companies were able to get in the peak period.

Irving Place Capital formed Churchill Financial in 2006. Ken Kencel, formerly head of leveraged finance at Royal Bank of Canada, was brought aboard as CEO, and Kurteson, formerly a senior managing director at GE Capital, joined as COO. The firm was launched with about $500 million in initial capital commitments and has since grown to include more than $3.25 billion in assets under management and approximately $1.25 billion of committed capital.

Barclays advised Churchill Financial on the deal. Kirkland & Ellis was counsel to Olympus Partners.