Energy Capital retools lending strategy with Fund II

Energy Capital Partners is in market with its second infrastructure debt fund, seven years after it launched its first, according to pension fund documents from the Minnesota State Board of Investment.

The Short Hills, New Jersey-based private equity and debt manager is seeking $800 million for its Energy Capital Partners Credit Solutions II. Its predecessor, Energy Capital Partners Mezzanine Opportunities Fund, launched in 2012 and raised $805 million with a final close February of the following year, according to a statement at the time.

The firm could not be reached for comment.

Fund II “represents a refinement of the strategy”, as it will predominantly target directly originated senior secured loans, whereas Fund I deployed capital into both senior and subordinated debt. It may invest a portion of its capital in structured equity transactions and liquid debt instruments.

ECP will target a gross internal rate of return of 12-15 percent and a gross multiple on invested capital of 1.5x-1.7x. The makeup of the vehicle’s return profile will be a 5-7 percent cash yield and a combination of upfront fees and original issue discounts along with possible equity upside.

Fund I had reported a 5 percent net IRR as of 30 June and a 1.1x net MOIC. Senior credit investments, which made up only $377 million of the vehicle, posted a gross IRR of 25 percent and gross MOIC of 1.5x. No net IRR or net MOIC was provided for Fund I senior investments only.

The firm will invest in traditional and renewable power generation, midstream pipeline, storage, processing and transportation assets as well as environmental infrastructure and energy and natural resource-related equipment. Its portfolio companies will be mainly in North America, but the firm may invest outside of its core region if an opportunity arises.

Limited partners said in PDI Perspectives 2019, Private Debt Investor’s annual investor survey, that they largely planned to keep their allocations to infrastructure debt constant, with some 76.1 percent indicating plans to do so. LPs looking to increase their bucket for the strategy stood at 15.5 percent, with 8.5 percent showing a preference for lessening their exposure to it.

Infrastructure debt has ballooned in recent years, causing PDI sister publication Infrastructure Investor to launch an inaugural listing of the top 10 infrastructure debt managers in the world based on capital raised. EIG Capital Partners came in first, having raised $11.48 billion over the past five years. BlackRock and Macquarie finished second and third, respectively, raising $10.26 billion and $7.18 billion.