Regional banks, independent mezzanine lenders and even traditional buyout firms are stepping up and filling the gap created by the absence of traditional senior debt providers.
One example is
The firm is willing to hold up to $30 million to $40 million of debt on its books without the need for syndication, the source says. Although the target for the pool is undisclosed, Chatham Capital has already raised more than $300 million for this “one-stop” strategy for Chatham Cascade Fund III, according to regulatory filings. The firm’s prior fund, Chatham Investment Fund III, secured commitments of $350 million in 2007 and Chatham Capital is half way through deploying that capital.
Asked about the lending environment, Brian Reynolds, managing partner at Chatham Capital, said: “The weakness in the senior and junior capital markets caused by the loan market’s downsizing has provided a permanent change in the market.”
He adds that the high demand has caused a reduced-risk environment with increasing relative returns for lenders.
As reported last week, Wayne, Pa.-based Boathouse Capital was launched in late 2008 by former American Capital professionals and is in the process of raising a mezzanine fund that will invest in “top quality, later-stage businesses,” according to its website. The firm is believed to be seeking between $75 million and $225 million for its fund, as it has stated it plans to use the pool to make roughly 15 investments of between $5 million and $15 million each.
CastleGuard Partners launched in early July from the ashes of Freeport Financial, which earlier this year laid off all but four of its employees. The Glenview, Ill.-based firm plans to focus on providing first lien senior secured loans to sponsor-backed companies with annual EBITDA greater than $10 million. CastleGuard is currently in the process of securing long-term capital commitments from institutional investors.
Another new entrant to the lending pool is
“We believe that the dislocation in the credit markets will continue to bring great opportunities to deliver strong risk-adjusted returns to our investors,” CEO Ted Virtue said in a press release.
Also, in early June, New York-based buyout firm
Regional banks such as Keybanc Capital Markets, SunTrust, Fifth Third Bank, Union Bank and Tri-State Capital Bank are also getting in on the act of providing senior loans for sponsor-backed transactions.
For its part, Keybanc Capital has launched efforts to expand its financial sponsor coverage. The firm in April provided financing alongside Tri-State Capital Bank and US Bank for the add-on acquisition of Blendco Systems by DuBois Chemicals, a portfolio company of Riverside Co.
Sponsor-backed transactions are “an important part” of new business development at Tri-State Capital Bank, says President Bill Schenk.
He adds that the opportunities have increased over the past 18 months as private equity-backed loans now make up about 10% of the bank’s $1.2 billion loan portfolio. In addition to the Blendco Systems deal for Riverside, Tri-State Capital Bank provided financing for an add-on acquisition to Riverside portfolio company ActivStyle, a distributor of medical supplies.