TPG to take its BDC public amid shadow banking bonanza

TPG launched TPG Specialty Lending Inc (TSL) as a non-publicly traded BDC in 2011, gradually raising $1.5 billion from investors, including a $117.1 million commitment from TPG itself.

BDCs are pools of capital that invest in different types of debt of small and middle-market companies. BDCs often trade on public markets and pay out at least 90 percent of their annual profits as dividends to avoid corporate taxation under provisions passed by Congress in 1980.

As traditional lenders face increased capital constraints and tighter lending guidelines from regulators, BDCs have seen demand rise. There were 68 active BDCs with assets totaling $53.7 billion as of the end of June 2013, up from just $5 billion at the end of 2003, according to the U.S. Securities and Exchange Commission.

In a regulatory filing with the SEC on Tuesday, TSL said it would use proceeds from the IPO to pay down debt and invest in portfolio companies. It said it believed it would be one of the largest BDCs by total assets at the time of the IPO.

The IPO will open a door for TSL investors, including the Oregon Public Employees Retirement Fund and the State of New Jersey Common Pension Fund, to exit their investment if they wish to do so. It will also allow TPG to receive higher management and incentive fees for its advisory services under the terms of its agreement with investors.



TSL usually lends to middle-market companies in the United States with annual EBITDA of between $10 million and $250 million.

Among its debt investments in 25 portfolio companies are bowling alley operator AMF Bowling Worldwide Inc and Mandalay Baseball Properties LLC, an owner of Minor League Baseball teams.

TSL has reported gross internal rate of return of 17.5 percent on investments it has exited from inception to the end of September 2013. The company reported net investment income of $40.5 million in the nine months to the end of September, compared with $17.1 million in the corresponding period in 2012.

Led by Goldman Sachs Group Inc veteran Joshua Easterly and former Wells Fargo & Co financier Michael Fishman, TSL is part of TPG’s special situations platform, which has more than $6 billion in assets invested in credit and equity instruments. Alan Waxman, who is TPG’s chief investment officer for credit, also advises TSL.

TPG has more than $55 billion of assets under management, mostly in private equity. Among TPG’s major competitors, Apollo Global Management LLC and Ares Management LLC manage publicly traded BDCs. Blackstone Group LP, KKR & Co LP and Carlyle Group LP also have BDCs but have not yet taken one public.

Carlyle’s BDC, Carlyle GMS Finance Inc, told investors at its inception in 2012 it would aim to go public in the next five years.

JPMorgan Chase & Co, Bank of America Merrill Lynch and Goldman Sachs are the lead underwriters on TSL’s IPO.

Greg Roumeliotis is a reporter for Reuters News in New York