American Capital Strategies has invested $300 million (€193 million) in Core Business Credit, a Dallas-based commercial lender to middle market firms.
The investment is a mix of subordinated debt and equity, and will be accompanied by undisclosed co-investments by Core Business executives Michael Haddad and Milton Iskra. German commercial lender Autobahn Funding Company will extend a $235 million senior credit facility in conjunction with the fresh investments.
Neither American Capital nor Core Business could be reached for comment.
American Capital, which just reported a first quarter loss of $813 million partly because of collateral damage from the credit markets, is hoping to capitalise on the increased popularity of asset-based lending as private equity firms and private businesses scramble to find affordable financing.
Unlike cash-flow debt, the traditional form of leverage for most private equity transactions, Core Business plans to make asset-based loans secured by such collateral as accounts receivable, inventory, equipment and owner-occupied real estate.
Founded in August of last year by Haddad, Core Business will also offer warehouse, rediscount loans and senior stretch loans to customers with annual revenues of between $35 million and $500 million. The company currently has offices in Dallas, Houston, Los Angeles and Atlanta.
Core Business represents the latest addition to American Capital’s financial services portfolio, a sector in which the mid-market specialists has grown increasingly active. Last year, the firm invested in five credit or insurance businesses, including $100 million in asset-based lender Oceana Media Finance.
The latest financial services commitment comes during a turbulent period for American Capital, which manages roughly $19 billion in capital and is a member of the S&P 500.
Earlier this month, the mid-market firm shut down its Philadelphia office and consolidated West Coast operations, in the process laying off more than 80 employees. It also lost the head of its European affiliate, European Capital.
Despite these setbacks, American Capital’s first quarter figures beat many Wall Street analysts’ predictions.
“Over the past several months, where you’ve seen numerous firms be forced to issue diluted equity, we were one of the few financial institutions to raise significant capital last year, and we raised it ahead of the credit crisis we saw coming,” chief executive Darren Wihn said today during a shareholders meeting.