September was a busy origination month for mid-market lender Madison Capital Funding. But the Chicago firm also found plenty to like in the secondary market.
In addition to providing senior cash-flow loans backing two LBO deals last month, Chicago-based Madison Capital acquired a portfolio of mid-market loans representing 40 different borrowers from a lender that folded earlier this year. The collective commitments—all of which back sponsored deals—total more than $141 million.
“What drove our interest was basically that we were not able to put out the kind of dollars we’re looking to on general platform financings because deal flow was so slow,” Christopher Williams, a senior managing director at Madison Capital, told Buyouts. “This opportunity came along, and it was a great chance for us to pick up some quality assets at what we considered to be a great price.”
Williams said Madison Capital was able to acquire the portfolio of non-distressed loans at a discount to par, but declined to say how steep the discount was.
The loans in the portfolio were all originated by a relatively new, mid-market lender that went out of business this past spring, Williams said. He declined to name the seller, noting only that its funding structure proved unsustainable after the market collapsed, and that it was sold to another entity earlier this year.
The loan portfolio was sold in an auction process that included “five or six” bidders in addition to Madison Capital, Williams said. Five of the borrowers represented in the portfolio were already in Madison Capital’s own portfolio, but the firm had to performance due diligence on the remaining 35 to get comfortable with the assets, he added.
Madison Capital is no stranger to acquiring the portfolios of other lenders. Shortly after the firm was founded in 2001, the firm acquired selected assets of a “large commercial bank” that was looking to sell off some of its mid-market loans after the 9/11 terror attacks and recession toppled the market. “It was a great way to jumpstart our business and build our balance sheet,” Williams said.
In addition to its most recent portfolio acquisition, Madison Capital also closed two new platform financing deals last month, backing
“Our primarily interest is in financing new platform opportunities for our sponsors,” Williams said, adding that Madison Capital has seen an uptick in deal activity over the past month, and that it is working on a number of deals scheduled to close in the fourth quarter. So far in 2009, Madison Capital’s new deal volume is off by more than 75 percent from the pace in 2008, Williams said.
Madison Capital is a subsidiary of New York Life Investments, which provides the lender with its capital. Williams said that affiliation is likely what helped the lender win the process. “Given the fact that New York Life is our parent, I think the seller felt confident that Madison’s ability to deliver and close a deal was probably better than some of the other folks trying to secure the asset,” Williams said.