Thomson Reuters LPC Middle Market Loans Conference The Middle Market Evolution Continues: Once a mystery, now the place to be

Transcription

1 Thomson Reuters LPC Middle Market Loans Conference The Middle Market Evolution Continues: Once a mystery, now the place to be May 6, 2015

2 Middle Market Capital Providers: The Evolution Continues Moderator Robyn E. Roof Managing Director & Group Head KeyBanc Capital Markets, Inc. Panelists Frederick D. Buffone Managing Director, Head of Capital Markets Fifth Street Finance Kevin F. Burke Senior Managing Director GE Capital Markets, Inc. Scott A. Cullerton Director KKR Capital Solutions Group Devon M. Russell Senior Managing Director Madison Capital Contacts: Robyn E. Roof KeyBanc Capital Markets / rroof@key.com Alexandra Vidmar KeyBanc Capital Markets / avidmar@key.com Meghan Curran KeyBanc Capital Markets / meghan.curran@key.com 2

3 Agenda I. Leveraged Middle Market Defined: An Arranger s Perspective II. III. IV. Sources of Capital: Pre-Crisis & Post-Crisis Evolution of Middle Market Capital Providers Why Middle Market Loans? V. Recent Strategic Positioning VI. Outlook for Middle Market Sources of Capital 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.. 3

4 Leveraged Middle Market Defined: An Arranger s Perspective Attribute Lower Traditional Large Deal Size EBITDA Distribution < $100 million < $25 million Direct and / or Club Arrangers & Investors U.S. Finance Companies BDCs < $150 million < $50 million but > $25 million Prorata Club and Some Institutional U.S. & Foreign Finance Companies BDCs Middle Market CLOs > $150 million > $50 million Institutional U.S. & Foreign Finance Companies BDCs Middle Market CLOs Broad Market CLOs Loan Funds Hedge or High Yield Funds Volume by Market (1) ($ in billions) Traditional Middle Market (2) Large Middle Market (3) $175 $175 $150 $125 $100 $150 $125 $100 $136.1 $159.6 $75 $75 $50 $25 $0 $47.1 $42.4 $ $50 $25 $0 $ (1) Source: Thomson Reuters LPC which defined Middle Market as borrowers with sales < $500 million (2) Traditional includes both sponsored and non-sponsored volume for deals sized below $100 million, per Thomson Reuters LPC (3) Large includes both sponsored and non-sponsored volume for deals sized at or above $100 million, per Thomson Reuters LPC 4

5 Sources of Capital: Pre-Crisis & Post-Crisis 2007 Securities Firms US 5.6% 7.4% Foreign 6.8% Finance Companies 13.0% Institutional Investors 67.2% US 26.0% Foreign 6.3% Securities Firms 2.6% Finance Companies 34.8% Institutional Investors 30.3% US 4.4% Foreign 9.1% Finance Companies 11.7% Securities Firm 1.1% Institutional Investors 73.7% 2007 Institutional Investors 67.2% Finance Companies 13.0% Foreign 6.8% US 7.4% Securities Firms 5.6% 100.0% 2009 Institutional Investors 30.3% Finance Companies 34.8% Foreign 6.3% US 26.0% Securities Firms 2.6% 100.0% 2014 Institutional Investors 73.7% Finance Companies 11.7% Foreign 9.1% US 4.4% Securities Firms 1.1% 100.0% Source: Standard and Poor s Leveraged Commentary & Data 5

6 Evolution of Middle Market Capital Providers Finance Companies MM CLOs 1.0 BDCs 1.0 Hedge Funds / Credit Op Funds Private Equity Funds Insurance Companies Mezzanine Funds Sources: The Lead Left, Private Debt Investor Magazine, Investor Websites 6

7 Evolution of Middle Market Capital Providers Traditional BDC Finance Company Private Equity Insurance Company Private Credit Funds 2001 Acquired Heller Financial CLO Manager (HY and Leveraged Loan Focus) Product / Services Expansion 2008 NasdaqGS:FSC Public BDC 2013 NasdaqGS:FSFR (Senior) Public BDC 2014 Senior Credit Funds, CLOs & JVs 2005 Acquired Antares Capital 2007 Established Senior Secured Loan Program 2008 Acquired Merrill Lynch Capital Private Credit (Mezz, Direct Lending, Spec Sits), Private BDC Integrated Capital Markets & Private Credit Origination, Mid-Market B/D JV Funding Sources Expansion and Developed Investment Management Capabilities 2015 Funding Sources & Capabilities Expansion 7

8 Why Middle Market Loans? Diverse Investor Base Size of Market Shorter Duration Favorable Pricing Lower Defaults / Higher Recoveries MIDDLE MARKET INCLUDES 200,000 BUSINESSES IN ALL INDUSTRY SEGMENTS AND GEOGRAPHIES Capital Structure Seniority "Skin in the Game" Less Volatility / Increased Liquidity More Conservative Structures Lower Risk Profile Sources: GE Capital, Fifth Street Management, The National Center for the Middle Market 2014 Annual Report 8

9 Recent Strategic Positioning (LTM) New BDCs New Direct Platforms / Participants New JVs & Mergers New Middle Market Funds & CLOs Churchill Asset Management (Apr-15) (Ivy Hill) 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 9

10 Outlook for Middle Market Sources of Capital Proposed Regulation Effect on Effect on CLOs Effect on BDCs Leveraged Lending Guidance Negative Positive Positive Basel III Negative Positive Positive Volcker Rule Negative Negative Positive How will Leveraged Lending Guidance impact banks ability to invest in leveraged loans? % of respondents 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% - modest impact Non- Non Survey 2014 Survey 2015 Survey Sources: Fifth Street Management, Thomson Reuters LPC 10

11 Appendix

12 Evolution of Middle Market Capital Providers Cumulative # of BDCs Cumulative # of CLOs BDC 1.0 Equus Total Return American Capital Partners MVC Capital PennantPark Floating Rate Gladstone Capital Corp MCG Capital Harris & Harris Ameritrans Capital Corp. TICC Capital Corp. Apollo Investment Corp. Ares Capital Corp. Prospect Capital Corp. NGP Capital Resources Hercules Technology Growth Capital Gladstone Investment Corp. Middle Market CLO 1.0 Jefferies Finance Company CIT Capital Source Madison Capital Heller Financial - acquired by GE FirstLight Financial - acquired by Ares Transamerica - acquired by GE Freeport Antares Capital - acquired by GE Private Equity & Asset Manager 1.0 New York Life (Madison Capital Funding) Och-Ziff, Northwestern Mutual Life & Shawmut Capital (NewStar Financial) Unitranche 1.0 Golub BDC 1.0 Capital Southwest Corp. Kayne Anderson Energy KCAP Financial Triange Capital Corp. Saratoga Investment Corp. PennantPark Investment Corp. Blackrock Kelso Capital Corp. Main Street Capital Corp. Fifth Street Finance Corp. New Mountain Finance FS Investment Corp THL Credit Inc. Keating Capital Middle Market CLO 1.0 Golub, Jefferies & NewStar Finance Company Merrill Lynch Capital - acquired by GE Unitranche & JV 2.0 GE Capital & Allied Capital GE Capital & Ares Capital GE Capital & Mubadala JV BDC & Unitranche 2.0 Solar Capital Ltd. Golub Capital BDC Corporate Capital Trust TPG Specialty Lending Firsthand Technology Full Circle Capital Corp. Horizon Technology Medley Capital Corp. Solar Senior Capital Ltd. Fidus Investment Corp. GSV Capital Corp. FSIC II FSEP II BDCA HMS Income Funds TCP Capital Corp. Sierra Income Fund Monroe Capital Corp. Goldman Sachs BDC Stellus Capital OFS Capital Corp. Whitehorse Finance LLC CION Investments Garrison Capital Carlyle GMS Harvest Capital Credit FSIC III Fifth Street Floating 28 NF Investment Corp. Capitala Finance Corp. American Capital Senior Floating ( 14) CM Finance ( 14) TriplePoint Venture Growth ( 14) Alcentra Capital Corp. ( 14) TCW Direct Lending ( 14) Griffin-Benefit Street ( 14) BDCA II ( 14) NexPoint Capital ( 14) Carey Credit Income Series-15 ( 14) Carey Credit Income Series-17 ( 14) Credit Suisse Park View BDC ( 14) Champion Investments Inc. ( 14) Golub Capital Investment Corp. ( 14) Crescent Capital BDC ( 15) Freedom Capital Corp. ( 15) Middle Market CLO 2.0 Arrowpoint, BMO, Cerberus, Fortress, Fifth Street, Garrison, Golub, Ivy Hill, Jefferies, Madison, MCF Capital, Monroe, NewStar, NXT Capital, Oak Hill, Tennenbaum & TICC Finance Company Monroe Capital middle market loan fund NewStar middle market loan fund NXT (Stone Point) CIT & OneWest - merger ( 14) NXT Capital middle market loan fund ( 15) Private Equity & Asset Manager 2.0 StonePoint (NXT) Carlyle (Churchill Financial) Blackrock & BlueMountain (Alliance Partners) Crescent Capital (Crescent Direct Lending) MassMutual / Babson (Babson Middle Market) Apollo (Madison Capital) KKR & Stone Point (KKR - Merchant Advisors) Highbridge Middle Market fund Cyrus Capital (Stifel) AllianceBernstein (direct lending platform) ( 14) Varagon Capital Partners / AIG JV ( 14) Trinity Universal Insurance (Fifth Street) ( 14) Angelo Gordon (direct lending platform) ( 14) Voya (Solar) direct lending fund ( 14) PIMCO (Solar) unitranche JV ( 14) American Capital middle market loan fund ( 14) Credit Value Partners middle market loan fund ( 14) THL Credit (Perspecta Trust) JV ( 14) NewStar (GSO & Franklin Square) ( 14) MGG Investment Group McCourt) ( 15) Apollo (Midcap Financial) JV ( 15) Koch Industries & Eaglehill Capital ( 15) TIAA-Cref (Churchill Asset Mgmt) ( 15) (1) : Sources: SEC filings, Thomson Reuters LPC Loan Connector, Standard & Poor s Leveraged Commentary & Data ( LCD ), Bloomberg & individual investor websites (2) Table above reflects all middle market CLO managers, but a sample of select BDCs, asset manager, and private equity entrants intro the middle market YTD 5/1/