Audax closes unitranche fund with $2.6bn of investable capital

The firm raised the capital from a diverse limited partner base, which included multiple types of institutional investors around the world.

The Audax Group has closed its latest debt fund above target, locking down $1.65 billion from an array of investors spanning the globe.

The Boston-based firm closed Audax Direct Lending Solutions (DLS) above its $1.25 billion target, and with anticipated leverage, the vehicle will have $2.6 billion in deployable capital, the firm said in a statement.

The new fund will allow the firm to expand its offering of one-stop loans.

“We have had the capability of providing senior and mezzanine debt,” Kevin Magid, a managing director and head of Audax Private Debt, told Private Debt Investor. “Prior to raising DLS, we haven’t had the appropriate vehicle to originate unitranche and stretch senior loans. Private equity sponsors are thoughtful and looking for all structures. They tend to choose their financing based on what their strategy is for a specific company.”

The firm currently oversees $8 billion of assets in debt strategies across private funds, both locked-up capital and open-ended vehicles, as well as separately managed accounts and Audax Credit BDC, he added.

The business development company closed a $290 million fundraise in early December, according to a Securities and Exchange Commission filing.

In 2016, the firm closed Audax Senior Loan Fund III on its $500 million hard-cap, and with a $1.1 billion credit facility, the vehicle had $1.6 billion in deployable capital. That same year, the firm closed its Audax Mezzanine Fund IV on $1.2 billion of capital commitments.

DLS will underwrite loans of up to $175 million to private equity-backed companies, and the hold size will be “reasonably close” to that figure, according to a source familiar with the situation. The “large majority” of the fund portfolio will be tilted toward unitranche and stretch senior debt investments, this person said.

DLS’s investors included insurance companies, pension plans, and foundations and endowments in the US, Europe, Asia-Pacific, Canada, Latin America and the Middle East, the statement said. Specific investors include the Pennsylvania State Employees’ Retirement System ($100 million) and the Alaska Permanent Fund Corporation ($125 million).

Investor appetite for direct lending tends to be relatively constant across geographies, according to a survey by placement agent Probitas Partners. Among alternative asset strategies, 24 percent of European and Asian investors said they were focusing much of their attention on the sector, while that figure was 26 percent for North American limited partners.

The 2019 deal market offers both opportunities and reasons for caution, Magid said.

“There is still a lot of dry powder in mid-market private equity funds. Private equity firms need to get businesses financed, both portfolio companies and new acquisitions,” he said, noting that provides an opportunity set for direct lenders.

“Credit managers should stay focused on reasonable covenant packages relative to size of company and be mindful of many new entrants to the space attempting to be aggressive to build AUM.”