In another example of the increasing use of unitranche loans, FS Investments has used such a facility to help finance a private equity investment into an early childhood education provider.
FS Investments announced Tuesday its four business development companies – FS Investments Corporation (FSIC), FSIC II, FSIC III, and FSIC IV – supported Morgan Stanley Global Private Equity's acquisition of Cadence Education with a $120 million senior secured unitranche loan. The four BDCs are managed by affiliates of FS Investments and sub-advised by an affiliate of GSO Capital Partners.
The source of the additional $30 million in unitranche financing was not disclosed, and FSIC declined to provide more detail on the loan. Morgan Stanley and Cadence Education representatives did not return messages seeking further details by press time.
Many private credit funds are providing more senior debt and unitranche facilities as the market moves later into the credit cycle. Doing so provides less downside risk in the event of financial distress. Those two debt types leave the lender higher in the capital stack and higher in the repayment pecking order. Law firm Paul Hastings noted in its review of the second-quarter credit markets that leveraged loan guidelines were providing an opening for more unitranche facilities.
Cadence Education provides curriculum-based educational services to children between the ages of six weeks and 12 years old. The Scottsdale, Arizona-based company maintains a platform of more than 150 private preschools and elementary schools serving more than 20,000 students across 20 states.
FSIC manages $16.5 billion in BDC assets and was founded in 2007. In addition to the four BDCs that participated in the loan used to finance the Cadence acquisition, FS Investments also manages FS Energy and Power Fund, making it the largest manager of BDCs.
In June, the firm added an additional $50 million in debt to an existing commitment of an undisclosed size to Greystone & Company, a mortgage lender. That loan contributed to the $830 million the firm committed to mid-market companies during the second quarter, bringing year to date commitments from its BDC direct lending platform to $1.2 billion, according to announcement released last month.