Alcentra closes direct lending fund on €850m

The fund is already 50 percent invested with the unitranche offering in high demand, chief investment officer Paul Hatfield (pictured) told PDI.

Sub-investment grade specialist Alcentra Limited has held a final close on a European direct lending fund on €850 million, the firm announced on Monday (24 November).

Fundraising for the Alcentra European Direct Lending Fund brings the firm’s committed capital for the strategy to more than €1.5 billion.

The focus of the fund is to provide debt financing to mid-market companies, both sponsored and sponsorless, in Europe and is already 50 percent invested, Paul Hatfield, chief investment officer at Alcentra, told PDI.

Alcentra has been sourcing and arranging financings for mid-market companies in Europe since its launch in 2003. Hatfield said the firm has seen an opportunity for alternative lenders in Europe emerge however, arising from the increasing regulation placed on banks particularly in mainland Europe. “I anticipate [the opportunity] will be there for five to six years,” he said.

The direct lending fund is targeting returns in the low to mid-teens with north of 50 percent of investments made in unitranche and the remaining investments split roughly 50:50 between senior and mezzanine opportunities (and other equity). “There has been a lot more interest in unitranche than we expected,” Hatfield continued. 

Focused primarily on opportunities in north-west Europe including the UK, Germany, the Benelux countries, Scandinavia, Switzerland and Austria and France on a more selective basis, the average loan size will range between €20 and €25 million. Anything larger than €40 million will be a candidate for co-investment or syndication, Hatfield explained. 

Fifty percent of the fund’s investment has come from US institutional investors with the remaining 50 percent coming from the rest of the world. David Forbes-Nixon, chairman and chief executive officer of Alcentra, commented in a statement: “This fund is a strong endorsement of Alcentra’s capabilities, with global investor participation by pension funds, insurance companies, endowments, foundations, wealth managers and asset managers.” 

Graeme Delaney-Smith, managing director and head of European direct lending for Alcentra, also said in a statement: “Direct lending is a large, attractive, long-term opportunity given the balance sheet constraints of European banks and the historical lack of non-bank lenders. Our size, experience and sourcing capabilities leave us well positioned, and has allowed us to invest a significant amount of the Fund over a relatively short period.”

The London-headquartered Alcentra Group, owned by The Bank of New York Mellon Corporation, has around $25 billion assets under management. Strategies include senior loans, high yield bonds, direct lending, structured credit, distressed debt and multi-credit strategy.