BlueBay closes Direct Lending III on €6bn – exclusive

BlueBay has closed its latest direct lending fund on more than €6 billion, more than double the amount of its previous vintage.

BlueBay Direct Lending Fund III launched in September 2017 and has attracted commitments from a broad range of existing and new investors. LPs come from numerous geographies and BlueBay said it has seen increasing interest from investors in Japan, Korea and Taiwan, as well as Europe, North America and the Middle East.

To serve its array of investors the fund offers both levered and unlevered options as well as a range of currencies including euros, US dollars, sterling, yen and Canadian dollars.

Anthony Fobel, head of private debt at BlueBay, said the fund was significantly oversubscribed but constrained its fundraising to ensure it can invest its money responsibly.

“Our fund would have been very materially oversubscribed but we set the amount raised at the level we felt comfortable investing,” he told Private Debt Investor.

“Our previous funds aimed to do 15 to 20 deals each year over a three-year investment period. This fund will do the same number of deals per year but target slightly larger deals over a four-year investment period. We never like to feel the pressure to invest because that’s where mistakes are made.”

He explained that the four-year investment period will also enable the fund to benefit from improved pricing and terms in the debt market that are expected to stem from the next cyclical downturn.

“Difficult markets are very good for us as we tend to see better terms and less competition as banks become more skittish,” Fobel added.

The fund will target the upper mid-market, looking at companies with EBITDA ranging from €10 million to €150 million and making loans of between €75 million and €300 million.

Fobel believes this segment of the market offers the best opportunities for private debt lenders, saying: “We target loan sizes of between €75 million to €300 million – in other words, slightly below the broadly syndicated market where most banks and CLOs are active, as that market currently has very poor terms and pricing, with which we do not want to compete. However, our loans are above the level where banks are prepared to hold the loan on their balance sheets.”

It will invest in companies across Europe with a particular focus on northern Europe but will also invest in Spain and Italy. It will look at non-cyclical industries that are cashflow generative and which occupy a market-leading position in their fields.

Direct Lending III will work alongside the firm’s 2017 vehicle, Senior Loan Fund I, allowing the firm to make investments across senior debt, unitranche, subordinated debt and some equity investments. It will predominantly work with private equity sponsors but will also make investments in non-sponsored transactions.

The vehicle has already invested approximately €900 million of its capital across seven transactions. It has a four-year investment period with a seven-year lifespan and the possibility of two, one-year extensions.

Fried Frank advised BlueBay on fundraising.

BlueBay’s private debt group has assets under management of approximately €13 billion and has completed more than 100 deals across 11 geographies since its inception in 2011.