Carlyle Group Co., Ltd. It aims to provide more direct financing to companies that do not have private equity backers.
As the $1.5 trillion private bond market swells and competition for borrowers intensifies, direct finance firms like Carlyle are looking beyond buying groups that need debt to finance deals. demand is increasing.
Lending to non-private equity borrowers tends to offer better protection and higher risk-adjusted returns. Taj Sidu“It’s been a long time since I’ve been in the middle of a long time since I’ve been in the middle of a long time since I’ve been in the middle of a long time since I’ve been in the middle of a long time since I’ve been in the middle of a Bloomberg News interview,” he said in an interview with Bloomberg News.
Private debt is suitable for companies that need a long-term lender who can provide complex financing solutions to help grow their business. In Europe, Carlyle has already provided £370m (about $465m) of debt financing to the British coffee chain. Cafe Nero Signed a €400 million (approximately $432 million) debt package to a Swiss sports marketing company last January in front the year before that.
Sidhu gave an interview to Bloomberg Cyrus Brown about that subject. Comments have been edited and condensed.
What are the causes of the increase in sponsorless lending?
Sponsorless lending is clearly growing as the private credit market moves from a niche asset class to the now mainstream large institutional asset class. As it continues to gain market share through public market lending, it is now the focus of all borrowers.
However, this segment of the market has seen relatively slower growth than the private equity sector due to much higher barriers to entry for lenders.
What are the barriers?
The first is origination. Unsponsored businesses are typically not repeat borrowers, so their borrowers are more difficult to access.
The direct-lending fund, which is negotiating with 30 private equity firms, has a very clear route to finding deals. Its job is to apply credit selection to gain market share. For unsponsored loans, instead of talking to 30 buyout funds, you have to talk to hundreds of intermediaries to find counterparties looking to raise money.
The second is the credit underwriting business. A lot of the due diligence we do as lenders of unsponsored businesses is primary. Lenders must employ lawyers, accountants, and tax agents who are diligent in their work. This is different from private equity, which bundles deals into better packages for lenders to redeem.
Sponsorless loans are very time consuming. You’re looking for a partner to actually help grow your business, and you often deal with borrowers who often want to talk to you. This differs from traditional direct lending, which is more transactional.
So why would lenders bother with unsponsored deals?
With far fewer market participants, it is significantly less competitive. The result is better risk-adjusted returns and more structural protection, which is especially important throughout the cycle. This is a true bilateral negotiation and the borrower is less focused on pushing through all the specific terms.
In general, it has become an increasingly difficult environment for banks to be long-term lenders, so companies that grew up with historical banking relationships are reluctant to let banks continue to support their journey as they grow. may become.
How big are the chances?
Since it is very difficult to quantify, the data can be sliced in many ways. However, there are many times more unsponsored companies than PE-backed companies. Not all of these are suitable for private financing, but the numbers are clear. Private credit lenders’ competitors are often alternative forms of financing such as bank borrowings, open markets and equity trading.
Some founders quickly realize they want to raise capital but don’t want to relinquish control and are looking for alternatives such as private credit.
What are the challenges compared to sponsored deals?
Some companies in this market are not as specialized, so it is important to identify where lenders are comfortable with corporate governance and standards of care.
It starts with management. A good senior team with known numbers and presence should be in place. You’d be surprised how often deals are made through word of mouth, like someone who has financed a family business and knows someone else’s business that might be a good fit.
For us, ensuring that we leverage all of the platform’s touchpoints across all offices, asset classes, sectors and counterparties is the potential to find these deals and comfortably partner with less specialized firms. help you meet your challenges.