Private Equity Making Direct Loans

New players are increasingly emerging to fund loans that do not meet banks’ strict criteria. An article in the WSJ cites nonbank commercial loan growth of 7.5% in the first quarter compared to 3.6% for bank loans. The increase in the number of funds over the prior five year period is impressive:

“Overall, firms completed fundraising on 322 funds dedicated to this type of lending between 2013 and 2017, with 71 raised by firms that had never raised one before, according to data-provider Preqin. That compares with 85 funds, including 19 first-timers, in the previous five-year period.”

The article cites that Ares just raised a record $10 billion dollar fund for middle-market lending, and that KKR is creating the largest business development company. Other titans expanding in this space include Apollo, Blackstone and Carlyle.

Direct loans are generally made as floating rate notes to companies with less than $50 million in EBITDA. For borrowers that have grown accustomed to falling interest rates, a reversal may come as a painful surprise.

business development company debt floating rate private equity
Source: Miriam Gottfried and Rachel Louise Ensign | "The New Business Banker: A Private-Equity Firm" | The Wall Street Journal | 08/12/2018 | Visit