Direct lenders grant US $ 1.6 billion loan to Risk Strategies
NEW YORK, Oct. 31 (LPC) – Risk Strategies, a national insurance brokerage and risk management firm, has secured a US $ 1.6 billion unitranche loan from a group of 10 direct lenders, this which makes it one of the largest loans to date, sources said.
The accelerating pace of large-scale direct lending operations this year, including a series of $ 1 billion plus Unitranche loans, underscores the depth and maturity of the private credit market. It also reflects a decline in banks’ appetite for risk.
The surge comes at a time when rising execution risk in the largely syndicated loan market – where leveraged borrowers have traditionally raised funds – is pushing private equity promoters to seek certainty in their arms. direct lenders.
“Direct lenders have become extremely valuable,” said a private lender investor. “Sponsors are not prepared to bet on the current uncertainty in the largely syndicated loan market.”
Since the start of the year, at least a dozen Unitranche loans of $ 500 million or more have been made by direct lenders, according to public and private data tracked by Refinitiv LPC, roughly double the seven deals concluded in 2018.
In the latter example, the $ 1.6 billion unitranche loan, which includes a $ 400 million deferred drawing component, was provided by administrative agent Golub Capital, in conjunction with Goldman Sachs, Apollo Global Management, KKR, Oak Hill Advisors (OHA), Ares, Carlyle, Owl Rock Capital Partners, Antares Capital and Partners Group, according to sources familiar with the transaction. The Company has also set up a US $ 50 million revolving credit facility.
The unitranche loan valued at 550bp above the Libor. The proceeds are expected to refinance the company’s existing capital structure, including a senior term loan priced at 425bp to Libor.
“People really liked the business and the ability to get really good allocations in a loan they like with a sponsor they know,” the direct lender said.
Risk Strategies is a Kelso holding company. The private equity sponsor acquired a majority stake in the brokerage firm in 2015 from Kohlberg & Company. On October 29, Risk Strategies announced in a statement that it had acquired Dash & Love Inc, a specialty brokerage firm based outside of Philadelphia. Terms of the acquisition were not disclosed.
Representatives for Golub, KKR, Carlyle, Owl Rock, Antares, Partners, Kelso and Risk Strategies declined to comment. Representatives from Goldman Sachs, Apollo, Ares and OHA were not immediately available.
Private credit is no longer the domain of small and medium-sized enterprises alone, and direct lenders benefit from the reassessment of risk in the larger loan market.
Sponsors are increasingly turning to direct lenders to fund large transactions with unitranche loans. The structure, which combines senior and subordinate risk in a single debt tranche, is preferred for its certainty and ease of execution.
Direct lenders said sponsors regularly show them offers before going to bank arrangers or at the same time, and they expect the momentum to continue.
A record US $ 10.7 billion in unitranche loans was recorded in the third quarter, exceeding the total of US $ 9.2 billion for the second quarter.
Last quarter, Integrity Marketing Group, which sells life and health insurance products to the senior market, raised a US $ 945 million unitranche loan in a transaction supporting the company’s strategic growth investment of private equity Harvest Partners in the company. Owl Rock, Crescent Cpital and Antares granted the loan.
Earlier this summer, ION Group tapped Goldman Sachs Private Credit and HPS to provide a US $ 1.25 billion loan for its takeover of media and financial data firm Acuris, and Golub provided a unitranche loan. $ 950 million to a cloud-based supply chain management company. E2open to buy Amber Road.
Typically, unitranche loans have been used to fund private equity-backed mergers and acquisitions for small and medium-sized enterprises, but over 40% of unitranche volume in the last quarter was arranged for large borrowers.
As the direct lenders explained, if previously they focused on the $ 30 million Ebitda companies, the $ 100 million Ebitda companies are now in the game.
With a large pool of private credit players capable of holding approximately $ 100 million in positions in a single transaction, it’s easier than ever to consolidate a billion dollar plus loan among a pool of investor buyers and curators.
The largely syndicated market also does not currently offer any significant price discounts compared to the direct lending market. At least 17 companies that tapped into the largely sydncied market in September and October saw their prices drop, all single B-rated borrowers, after investors demanded higher returns to invest.
In a dislocated market, the ability of direct lenders to act quickly and offer competitive terms mitigates certain factors, including flexible pricing and risk. Direct loan agreements also do not require rating. A sponsor can pay off incrementally in the direct lending market, but the sponsors are willing to swallow that to lock in the prices.
In other words, the sponsors know what terms they’re going to get, and that’s an interesting proposition. (Reporting by Leela Parker Deo; Editing by Michelle Sierra)