Exclusive: Carlyle, Madison Capital eye unitranche JV

The lending group of the alternative investment firm and the Chicago-based lender are said to be teaming up for a partnership to issue unitranche loans.

Carlyle GMS Finance, the non-traded BDC of alternative investment firm Carlyle Group, and Madison Capital Funding, a Chicago-based lender, are in talks about starting a partnership to issue unitranche loans to borrowers, according to sources familiar with the firms' plans. 

There is no specific size or target on the joint venture yet, but the firms would look to work on unitranche deals as opportunities arise, sources told PDI .

A spokesman for Carlyle declined to comment, while representatives from Madison Capital did not respond to requests for comment.

Madison Capital, which is owned by insurer New York Life Investment Management, has been tapping its parent and other partners for different sources of capital, PDI understands. 

In 2012, the lender formed a partnership with the Apollo Investment Corporation (AINV), the public BDC at Apollo Global Management, where Apollo became the anchor investor in some of Madison Capital's loan funds. The vehicle purchased an existing pool of senior secured loans to US mid-market companies with a face value of $250 million at the time. 

Sources tell PDI that the new partnership with Carlyle could mirror that with Apollo. It is not clear whether the Apollo partnership is still active or if the Carlyle JV would replace the deal. A spokesman for Apollo declined to comment. 

As of 31 March, the value of AINV's investments in three Madison Capital funds was about $88 million, according to Apollo's most recent 10K filing. 

Many other firms have been forming partnerships around unitranche loans, with the idea being that the various partners can hold the tranche better suited to their risk/reward expectations, while the borrower can sign one agreement, making the loan process easier than dealing with a slew of banks. BDCs also use JVs as off-balance-sheet leverage, as they have a regulatory limit on leverage set at 1:1.

The largest and most well-known partnership in the business has been the SSLP (Senior Secured Loan Program) between GE Antares and the Ares Capital Corporation BDC. That partnership is drawing to a close , as GE Antares has been sold to CPPIB, and Ares has formed a new partnership with Varagon Capital Partners.

TCW's direct lending group, Oak Hill Advisors and insurer Security Benefit Corporation also recently formed a unitranche JV . The TCW group will mainly originate the loans with help from Oak Hill, while Security Benefit will hold the senior most part of the deals, which is more in line with its risk tolerance, sources familiar with this partnership said. 

Cerberus Business Finance, the hedge fund manager's direct lending group, also recently formalised a partnership with PNC Bank to make senior loans. The two firms had previously worked on one-off deals together and launched a vehicle this year to target more of these kinds of investments. The firms submitted a filing for the Cerberus PNC Senior Loan Fund in March.

Madison Capital Funding was formed in 2001 and has invested $20 billion in net funded commitments across 825 financing transactions since then. The firm had $7.5 billion in assets under management as of March.

MCF Capital Management was formed in 2009 and later registered as an investment advisor in 2012. The firm serves as the manager for third-party investor accounts, funds and special purpose vehicles. Prior to that, Madison Capital was managing the insurer's money. The firm is led by co-founder and chief executive Hugh Wade and senior managing director Thomas Klimmeck.

Carlyle GMS Finance had about $2.5 billion in assets under management across five funds as of 31 March. The firm's broader Global Market Strategies business had approximately $36 billion in assets. The platform includes mezzanine and energy mezzanine loans, high-yield and structured credit, distressed equity and debt and several hedge fund strategies (long/short credit, emerging market equity, macro and commodities).

The GMS platform has offices in New York, Washington, DC, Los Angeles, Chicago, Hong Kong and London. Michael Petrick, managing director and head of GMS overall at Carlyle, is chairman of the board of the BDC, while Michael Hart, managing director at Carlyle, serves as president.