Direct Lending
You’ve got a growing business. You’re transferring ownership. You’re completing a buyout. You need capital. We’ve got you.
Direct lending is an avenue for companies like yours to access capital as an alternative to the syndicated loans or senior floating-rate capital traditionally provided by banks. Direct lending loans are provided by "non-bank" lenders, such as institutional investors.
Direct lending loans are primarily first lien, senior secured floating-rate loans, but can also be second lien, revolvers, or accordion/delayed-draw facilities. They have flexible amortization profiles and final maturities that usually range from 5 to 6 years.
The direct lending market has become a permanent source of capital for borrowers. It is largely a leveraged buyout-driven, sponsor-led market, but relies on private placement-style credit and terms underwriting.
We target the middle market, which is typically defined as companies with EBITDA of $10 to $50 million. Our regional office network enables companies to access growth capital globally, across the U.S., Canada, UK, and Europe.
Our investment focus
- Middle-market companies with attractive growth prospects and positive cashflow
- Typically, EBITDA of $10 - $50 million
- Generalist industry focus with an emphasis on business services, consumer products and services, distribution and logistics, food and beverage, energy, packaging, chemicals, and niche manufacturing companies
- Management teams and owners with an economic stake in the company’s success
Typical uses
- Recapitalizations/dividend recapitalizations
- Growth
- Acquisitions
- Shareholder buyouts
- Generational transfers
- Non-sponsored management buyouts
- Sponsored leveraged buyouts
- Cross-border financings
Typical size
- $25 million - $400 million
Issuer benefits
- Ability to do multi-currency, cross-border transactions
- Flexible prepayment terms
- Relationship-focused capital provider
Structural characteristics
- Floating rate
- Revolvers, accordions, and/or delayed-draw term loans
- 1%-10% yearly amortization with an excess cashflow sweep
- Typical maturities of 5-6 years
OUR TWO CENTS
DIRECT LENDING
Hear Jeffrey Dickson, Matt Harvey, and Sarah Bittner provide an overview of Direct Lending.
Benefits of direct lending loans
Direct lending capital offers five key benefits:
1. Larger Sums of Capital
For many companies, direct lending has essentially replaced bank financing because they can receive larger amounts of capital from fewer parties.
2. Lower Interest Rates and No Control Dilution
With direct lending, interest rates are lower than more junior types of capital, and unlike raising equity, you don’t have to give up a percentage of ownership.
3. Speed in Execution
Direct lending loans can be closed quickly as there are fewer investors involved. A streamlined approval process can enable deals to close in as little as 4 to 6 weeks.
4. Complement to Existing Financing
Direct lending loans also help diversify your sources of capital and capital structure, satisfying needs that other types of capital are not able to. Since they are shorter term, direct lending loans are a viable complement to longer-term financing. Diversification of funding sources is particularly important during market cycles when bank liquidity may be tight.
5. Flexible Payment Terms
Direct lending is considered "amortization light" with 1% to 10% amortization per year, with excess cashflow sweep.
Portfolio Companies
We have committed over $4.8 billion of direct lending capital to our partners as of 9.30.19.
Direct lending alternatives
The primary alternative to the direct lending market is the broadly syndicated market. Here are some of the advantages and disadvantages for each:
“Prudential Private Capital moved quickly to evaluate and propose a capital structure that best supported our strategic expansion project. Their diligence, speed, and certainty of delivery were all critical to completing the transaction.”
Jeffrey Bartoli, Managing Director, Centre Partners Management
OUR PEOPLE
Creative capital,
custom solutions.
“The market can be very transactional. It’s short term and somewhat fleeting in terms of relationships – as opposed to what we’ve done for a long time. We take a longer-term perspective.”
MATTHEW HARVEY
MANAGING DIRECTOR
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