Middle Market Investing: Surveying the Runway

Transcription

1 Middle Market Investing: Surveying the Runway Thomson Reuters LPC Middle Market Conference April 27, 2017

2 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. 2

3 Middle Market Investing: Surveying the Runway Moderator: James Hussney Managing Director, Loan Syndicate, Sales and Research KeyBanc Capital Markets, Inc. Panelists: Spyro Alexopoulos Managing Director Golub Capital Carey Davidson Head of Capital Markets Monroe Capital Heath Fuller Capital Markets Head NXT Capital Christine Harrington Managing Director Apollo Global Management Contacts: Robyn Roof KeyBanc Capital Markets / rroof@key.com James Hussney KeyBanc Capital Markets / jhussney@key.com Juan Gomez KeyBanc Capital Markets / juan.gomez@key.com Steve Rasoletti KeyBanc Capital Markets / stephen.rasoletti@key.com 5

4 Agenda Agenda I. Pre-Flight / Fueling I. Pre-Flight / Fueling II. In-Flight / Flight Plan II. In-Flight / Flight Plan III. Flight Conditions & Duration III. Flight Conditions & Duration IV. Landing Approach IV. Landing Approach 6

5 Pre-Flight / Assessment 7

6 Pre-Flight / Assessment Middle Market Asset Manager Vehicles Banks CLO BDC Direct Lending Platforms * * * * 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 8

7 Pre-Flight / Fueling Are middle market sources of capital unlimited? 9

8 Pre-Flight / Fueling Are middle market sources of capital unlimited? $60.0 Annual Middle Market Loan Fundraising $50.0 $40.0 $30.0 $57.8 $20.0 $10.0 $17.0 $23.3 $18.2 $ YTD2017 Source: Thomson Reuters LPC Loan Connector 10

9 In-Flight / Flight Plan What are the parameters in which you operate: segment, structure, yield 11

10 In-Flight / Flight Plan What are the parameters in which you operate: segment, structure, yield COMPARATIVE RISK/RETURN OF PRIVATE CREDIT Illiquidity, 10 year lock-up Intermediate Liquidity, 5-to-7- year lock-up Senior Direct Lending 6-8% IRRD Unitranche 7-10% IRR Mezzanine 10-15% IRR Distressed Credit 20+% IRR Daily Liquidity Corporate Bonds 2-4% Broadly Syndicated Large Bank Loans 3-5% High Yield Bonds 5-7% 5% 10% 20% 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 Source: Brown Advisory. The disclosure for alternative investments is available at: 12

11 Flight Conditions & Duration Is it smooth sailing or is there turbulence ahead? 13

12 Flight Conditions & Duration Is it smooth sailing or is there turbulence ahead? $60.0 Annual Middle Market Loan Fundraising $50.0 $40.0 $30.0 $57.8 $20.0 $10.0 $17.0 $23.3 $18.2 $ YTD2017 Source: Thomson Reuters LPC Loan Connector 14

13 Landing Approach How do economic conditions and investment performance look? 16

14 Landing Approach Middle market investing 4.0 what does it look like? 17

15 Appendix

16 Pre-Flight / Fueling - Banks 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 Sources: SEC filings, Thomson Reuters LPC Loan Connector, Standard & Poor s Leveraged Commentary & Data ( LCD ), Bloomberg & individual investor websites 19

17 Pre-Flight / Fueling CLOs 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 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 Sources: SEC filings, Thomson Reuters LPC Loan Connector, Standard & Poor s Leveraged Commentary & Data ( LCD ), Bloomberg & individual investor websites 20

18 Pre-Flight / Fueling CLOs 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 Sources: SEC filings, Thomson Reuters LPC Loan Connector, Standard & Poor s Leveraged Commentary & Data ( LCD ), Bloomberg & individual investor websites 21

19 Pre-Flight / Fueling BDCs 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 22

20 Direct Lending Platforms 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 Apr-16 Crescent Direct Lending Exceeds $1.7B of AUM and Builds Out Investment Team Onex launches lending platform, hires sponsor-finance veteran Sep-16 Capitala closes $500M private credit fund for middle market loans Oct-16 Oct-16 Jun-16 Audax closes $500M fund for middle market debt investments NXT Capital closes new fund for middle market direct lending Apollo BDC management rejig may signal subtle strategy shift Sources: SEC filings, Thomson Reuters LPC Loan Connector, Standard & Poor s Leveraged Commentary & Data ( LCD ), Bloomberg & individual investor websites 23