Highland Capital launches $1.5 bln healthcare BDC

  • To focus on sponsor-backed companies
  • BDC would not initially be traded
  • NexPoint Capital led by Jim Dondero, Brian Mitts

NexPoint Capital plans to raise $1.5 billion, according to a press release. Unlike BDCs whose shares trade on public stock markets, NexPoint Capital is being offered to investors on an ongoing basis as a non-traded product.  

The BDC is in the process of signing agreements with independent broker dealers, who will make the vehicle available to investors through their respective networks. Highland Capital has provided a $10 million seed investment to NexPoint Capital, which will enable it to start doing deals in early September. 

NexPoint Capital is led by Highland Capital co-founder Jim Dondero and Brian Mitts, who will act as NexPoint Capital’s chief operating officer. “It’s a natural progression of what we’ve been doing for 20-plus years,” Mitts told Buyouts. “We’ve always viewed, and (Dondero) has always viewed, healthcare as a very important part of the economy.”

The bulk of NexPoint Capital’s investments will be made in companies that are backed by sponsors, Mitts said, adding that the BDC will also ”look for non-private equity-backed companies with strong management.” Its mandate allows for investments throughout the capital structure, including senior debt, mezzanine or equity, depending on the situation. The size of its positions will likely range from $2 million to $25 million and may increase as the BDC’s asset base grows, according to an N-2 filing with the U.S. Securities and Exchange Commission. As a BDC, NexPoint Capital is permitted to leverage its assets up to a 1:1 ratio. 

NexPoint Capital’s N-2 filing calls for a liquidity event for investors within five years of the completion of the BDC’s offering. That will likely take the form of a public listing on a national stock exchange, a merger with another entity or a sale of the BDC’s assets, Mitts said. 

“We like the product a lot, and it is distinct from the publicly traded versions,” Mitts said. Highland Capital believes the amount that could be raised through a non-traded BDC exceeds what could be raised through a traded vehicle, he added. 

Highland Capital was founded in 1993 by Dondero and Mark Okada and has roughly $19 billion of assets under management. The firm operates across several investment strategies, including collateralized loan obligations, bond and debt products, private equity, natural resources and real estate.

Mitts said that the firm expects to see an acceleration of investment in the healthcare industry as more members of the baby boomer generation reach retirement age. “Post 65, people consume considerably more healthcare than at any other point in their life,” he said.

The implementation of the Affordable Care Act will also spur growth in the sector, he said. More than seven million Americans have gained health coverage since the health insurance rollout commenced in fall 2013, sister news service Reuters reported this month. The expansion of coverage, largely through Medicaid and other government programs, translates into more people getting healthcare through primary physicians, preventative care providers and other, more traditional providers.

“Small companies are going to start driving this,” Mitts said. “It’s not going to be the big pharmaceutical, big hospital companies that are driving change.”