Beechbrook reaches first close on debut SME credit fund

The firm’s new UK sponsorless lending strategy has raised more than half of its £200m target.

Beechbrook Capital has reached a first close of more than £100 million ($148 million; €135 million) on its new sponsorless UK small business lending fund, which is targeting up to £200 million.

The closed-ended UK SME Credit Fund, launched last July, will focus on extending senior secured loans of £3 million-£15 million to small to medium-sized businesses that are not controlled by a private equity firm. Borrowers will have turnover of between £10 million-£100 million and more than £1 million in EBITDA. 

UK-based Beechbrook focuses on lower mid-market debt in the UK and northern Europe and is preparing to launch its third mezzanine fund after deploying 76 percent of its €151 million Fund II in November 2015, as reported by PDI

The mezzanine strategy, however, focuses on private equity-backed borrowers. Managing partner Paul Shea told PDI last year that the new fund came about on the back of the large number of UK companies seeking financing that did not fall within the firm’s existing strategy. 

Investors in the debut vehicle include British Business Bank Investments Limited, the commercial arm of the British Business Bank and the European Investment Fund. The British Business Bank is an existing investor with Beechbrook. 

The firm said it expects to close the first loan from the new fund early this year. 

The fund will target gross returns of about 10-12 percent by extending senior and unitranche cash flow term loans, Shea said. Beechbrook expects to originate around 200 opportunities per year and complete seven or eight high quality loans.

Jon Herbert joined Beechbrook as managing director on the new fund in May 2015. For the past three years, Herbert was an in-house debt advisor at private equity firm LDC. He was previously head of acquisition finance for 10 years at UK bank Lloyds.

The new fund will also be supported by Tim Johnston who has worked at Beechbrook since 2009 and Peter Kirtley, who was previously an investment director at Lloyds with responsibility for sourcing, executing and managing SME leveraged loans. 

Arbour Partners is advising Beechbrook on the fundraising.