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Twin Brook nears close of fourth direct lending fund at $3bn hard cap

AG Direct Lending Fund IV, targeting $2bn with a $3bn hard cap, is expected to wrap up in the first quarter.

Twin Brook Capital Partners, the direct lending arm of Angelo Gordon, could be only weeks away from wrapping up a fourth offering, according to recently issued pension documents.

AG Direct Lending Fund IV, targeting $2 billion with a $3 billion hard cap, is expected to wrap up in the first quarter, reports by Oklahoma Tobacco Settlement Endowment Trust and Santa Barbara County Employees’ Retirement System said.

The fund has secured $1.2 billion, Oklahoma Tobacco’s report indicated. Angelo Gordon this month filed Form D fundraising documents that showed Fund IV and sidecar vehicles bringing in about $910 million.

If closed at its hard cap, Twin Brook’s latest fund will be the largest since 2014, when the Chicago credit manager launched a dedicated mid-market strategy in partnership with Angelo Gordon. Fund III two years ago collected $2.75 billion.

Fund IV will stick closely to the approach of its predecessors. It will provide senior secured loans for buyouts, recaps, add-ons, growth and other deals involving mid-market and lower mid-market companies in predominantly non-cyclical North American sectors. Borrowers will typically have EBITDA of $3 million to $50 million but most often less than $25 million.

Twin Brook aims to be the sole lender to a borrower or the leader or co-leader in a club deal.

Fund IV is looking to make more than 125 investments, reflecting preferred deal sizes of $50 million to $60 million, Oklahoma Tobacco’s report said. It will target a net internal rate of return of 10 percent to 13 percent (levered) and 6 percent to 8 percent (unlevered).

Keen on PE sponsors

An essential focus of Twin Brook’s direct lending strategy is private equity-owned companies. In its sourcing channels, the manager has coverage of more than 650 PE sponsors, RVK noted in an assessment for North Dakota Board of University and School Lands.

Twin Brook sees sponsor relationships as a way to ensure access to high-quality borrowers. It has done deals with more than 80 PE firms, senior partner Rich Christensen said in a November podcast with ACG’s Middle Market Growth. The trust developed with them, he said, proved key in the uncertain environment created by the covid-19 pandemic.

Direct lending has been a prominent subset of the private debt asset class, especially in the post-financial crisis period when banks largely withdrew from the space. Fundraising hit record peaks over 2017-2019, according to Private Debt Investor data. Because of the health crisis, private debt fundraising as a whole fell to a six-year low in 2020, Private Debt Investor reported.

While direct lending opportunities froze in the wake of covid-19’s outbreak, activity resumed later last year, some of it centered on resilient sectors. This is suggested in Twin Brook’s January announcement that it deployed $925 million-plus to PE-backed healthcare deals in 2020.

Twin Brook is led by founder and managing partner Trevor Clark. Other senior team members are Christensen, CCO and senior partner Drew Guyette and senior partners Grant Haggard and Faraaz Kamran. All are veterans of Madison Capital Funding.

Angelo Gordon, which oversees $43 billion in assets, is broadly focused on credit and real estate strategies.

Some 234 limited partners committed capital to Fund IV’s main vehicle, the Form Ds said. LPs who have disclosed commitments include Maine Public Employees’ Retirement System, North Dakota BUSL, Oklahoma Tobacco, Santa Barbara and Vermont State Retirement Systems.

AG Direct Lending Fund III was generating a net IRR of 7.1 percent (levered) and 4.8 percent (unlevered) as of June 2020, the pension documents said.

Twin Brook declined to provide a comment on this story.

(This story was updated to reflect current assets managed by Angelo Gordon.)