Churchill preps two more CLOs as it looks to repeat 2018 fundraises – exclusive

The alternative lender is also back on the road targeting $1.5bn with Fund II, and has held a first close on about half that amount.

Coming off a recording-breaking fundraising year in 2018, Churchill Asset Management is already blitzing back into market with multiple vehicles.

The New York-based direct lending arm of Nuveen, TIAA’s asset manager, plans to raise a similar amount of capital this year as it did in 2018, when it closed on $2.4 billion through a series of investment vehicles, said Ken Kencel, Churchill’s president and chief executive.

The firm is already warehousing next two mid-market collateralised loan obligations, he noted, adding that the deals will likely be in the $350-$400 million range. In May, the firm closed its third CLO – a $382 million deal that has a seven-year life arranged by Natixis.

In addition, Churchill is in market with its next senior debt fund, the Churchill Middle Market Senior Loan Fund II. The vehicle, which is seeking $1.5 billion, has held a first close on $746.5 million, according to a Securities and Exchange Commission filing. The firm declined to comment on Fund II.

Fund I collected $1.1 billion and held a final close in November 2017. The seven-year fund consists of a three-year investment period and a four-year harvest period, according to documents from the Miami Beach Employees’ Retirement Plan, as Private Debt Investor previously reported.

Fees included a 0.75 percent management fee on invested capital and a 10 percent incentive fee over a 7 percent hurdle rate, the memo revealed. The fund will aim for a 10-12 percent return with leverage, which could be up to 2x the committed capital.

“As a general matter, we’ve been focusing on backing private equity sponsors that invest in solid growing companies in stable industries, rather than fixing scratch-and-dent companies or more cyclical businesses,” Kencel said.

The average size of Churchill’s portfolio company by EBITDA has decreased from the mid-$40 million range to around $30 million today; a response to more aggressive terms coming at the higher end of the mid-market, said Randy Schwimmer, head of origination and capital markets.

“Cov-lite is a good example of that trend,” he said.” As incurrence test-only deals have edged down into smaller issuers, our sweet-spot EBITDA range has narrowed. All of our portfolio companies have financial maintenance tests.”

Despite looser documents and a lack of financial covenants across the market, equity contributions to deals have remained robust. Such figures in mid-market buyouts have generally been between 45-55 percent, Kencel said.

“I’ve expected equity contributions for middle market buyouts to come down for a while now,” Schwimmer said. “That they haven’t shows just how much private equity dry powder is out there. Deals in which equity-to-capital falls much below 40 percent make you question the value proposition.”