middle market investing: surveying the...
TRANSCRIPT
Middle Market Investing: Surveying the Runway Thomson Reuters LPC Middle Market Conference
April 27, 2017
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Important Disclosures KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A.. Banking products and services are offered by KeyBank N.A..
The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
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Contacts: Robyn Roof KeyBanc Capital Markets 212-476-7423 / [email protected]
Middle Market Investing: Surveying the Runway Moderator:
James Hussney Managing Director, Loan Syndicate, Sales and Research KeyBanc Capital Markets, Inc. [email protected] Panelists:
Spyro Alexopoulos Managing Director Golub Capital [email protected] Carey Davidson Head of Capital Markets Monroe Capital [email protected] Heath Fuller Capital Markets Head NXT Capital [email protected] Christine Harrington Managing Director Apollo Global Management [email protected]
Steve Rasoletti KeyBanc Capital Markets 216-689-3228 / [email protected]
James Hussney KeyBanc Capital Markets 216-689-3559 / [email protected]
Juan Gomez KeyBanc Capital Markets 216-689-3234 / [email protected]
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Agenda I. Pre-Flight / Fueling
II. In-Flight / Flight Plan
III. Flight Conditions & Duration
IV. Landing Approach
Agenda I. Pre-Flight / Fueling
II. In-Flight / Flight Plan
III. Flight Conditions & Duration
IV. Landing Approach
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Pre-Flight / Assessment
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Middle Market Asset Manager Vehicles CLO BDC Direct Lending Platforms
Pre-Flight / Assessment
Note: Each category organized top down, from newest to oldest Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites * Denotes inaugural MM CLO issuance Denotes merger or consolidation Denotes partnership
*
* *
Banks
*
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Pre-Flight / Fueling Are middle market sources of capital unlimited?
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Pre-Flight / Fueling Are middle market sources of capital unlimited?
Source: Thomson Reuters’ LPC Loan Connector
Annual Middle Market Loan Fundraising
$17.0 $23.3
$57.8
$18.2
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2014 2015 2016 YTD2017
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In-Flight / Flight Plan
What are the parameters in which you operate: segment, structure, yield
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In-Flight / Flight Plan
Illiquidity,
10 year lock-up
Intermediate Liquidity, 5-to-7-
year lock-up
Daily Liquidity
COMPARATIVE RISK/RETURN OF PRIVATE CREDIT
5% 10% 20%
Corporate Bonds 2-4%
Broadly Syndicated Large Bank Loans 3-5%
High Yield Bonds 5-7%
Senior Direct Lending 6-8% IRRD
Mezzanine 10-15%
IRR
Distressed Credit
20+% IRR Unitranche
7-10% IRR
Source: Brown Advisory. The disclosure for alternative investments is available at: http://www.brownadvisory.com/en/alternativeinvestmetndisclosures
Less Liquid, Higher Return Private credit – ranging from senior direct lending to distressed credit – offers a higher potential return than publicly traded fixed income securities while requiring a longer lock-up period
What are the parameters in which you operate: segment, structure, yield
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Flight Conditions & Duration Is it smooth sailing or is there turbulence ahead?
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Annual Middle Market Loan Fundraising
Source: Thomson Reuters’ LPC Loan Connector
Flight Conditions & Duration Is it smooth sailing or is there turbulence ahead?
$17.0 $23.3
$57.8
$18.2
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2014 2015 2016 YTD2017
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Landing Approach How do economic conditions and investment performance look?
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Landing Approach Middle market investing 4.0 – what does it look like?
Appendix
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Dec-16 Capital One Establishes Unitranche Loan Program
Jul-16 BB&T completes national Penn conversion
Jun-16 PrivateBank parent to be acquired in $3.8 billion deal
Feb-16 Can Hudson Executive Capital activists remake Comerica?
Jan-16 Huntington Bancshares to strengthen Midwest franchise with financially and strategically accretive merger with FirstMerit Corporation
Oct-15 KeyCorp to acquire First Niagara Financial Group
Mar-15 Cerberus PNC Senior Loan Fund, LP
Pre-Flight / Fueling - Banks
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
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Pre-Flight / Fueling– CLOs
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
Feb-17 SoftBank Group to Acquire Fortress Investment Group for $3.3 Billion
Jan-17 Marble Point Acquires ACCLOM
Aug-16 CIFC to be acquired by F.A.B Partners for $333 million in cash
Jun-16 Blackstone acquiers minority stake in Marathon Asset Management
Apr-17 Antares Capital prices $2.1B debut middle market CLO L+172.5
Nov-16 Brightwood Capital prices $750M middle-market LCO via Natixis
Mar-17 WFC prices dual RR $511M Neuberger Berman CLO 24 L+123
Mar-17 WFC prices $406M MM CLO for NXT Capital L+170
Feb-17 DB prices $816M CIFC funding 2017 L+136
Feb-17 NewStar prices $397M middle-market deal via Natixis L+178
Dec-16 Citi prices $304M MM CLO for Maranon Capital L+210
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Sep-16 Tennenbaum Capital closes $264.2M MM loan warehouse CLO L+225
Aug-16 WFS prices debut TIAA Churchill MM CLO: L+215
Aug-16 Alliance Bernstein debuts middle market CLO
Jul-16 Monroe Capital prices $305M middle market CLO via BNP L+225
Apr-16 GC prices $354M middle market Golub 31 CLO L+220
Pre-Flight / Fueling – CLOs
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
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Feb-17 Solar, Deerfield form loan venture
Jan-17 New York Life Investments builds platform with purchase of Credit Value Partners
May-16 Ares Capital grows even bigger with $3.4B American Capital Purchase
Jul-16 Providence Equity Partners subsidiary agrees to buy BDCA Adviser
Oct-16 Credit Suisse sells BDC to CION Investment
Apr-17 Middle Market: Owl Rock Capital
Mar-17 Middle market lender WhiteHorse files for security sale
Mar-17 Golub Capital BDC offering common stock
Jan-17 PennantPark files $500M shelf
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
Pre-Flight / Fueling– BDCs
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Direct Lending Platforms
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
Mar-17 NXT manages $500M debt portfolio for Aflac
Dec-16 PIMCO, Solar Capital form JV to expand private credit efforts
Nov-16 Northleaf Capital Partner acquiers minority stake in Anatares
Aug-16 Varagon, Ares Capital complete initial $3B funding for SDLP fund
Feb-17 Hancock Capital Adds Leveraged Credit Leadership Team in Chicago
Jan-17 Crescent Direct Lending Exceeds $1.7B of AUM and Builds Out Investment Team
Apr-16 Onex launches lending platform, hires sponsor-finance veteran
Sep-16 Capitala closes $500M private credit fund for middle market loans
Oct-16 Audax closes $500M fund for middle market debt investments
Oct-16 NXT Capital closes new fund for middle market direct lending
Jun-16 Apollo BDC management rejig may signal subtle strategy shift