HIG WhiteHorse has closed its initial sponsor-dedicated drawdown fund above its $1 billion target, which will continue a strategy that has been in place but operated out of the firm’s business development company until now.
The Miami-based lower mid-market lender closed on $1.1 billion for WhiteHorse Principal Lending Fund I, a total consisting of a commingled fund and separately-managed accounts that surpassed the $1 billion target, head of US direct lending Stuart Aronson told Private Debt Investor.
“We try to serve private equity firms who are doing deals that are not being subject to big auctions; bidding against 20 other people to provide financing is not a particularly productive activity,” he said. “[They are] often sponsors with fund sizes of $1 billion or less. As a result, we are playing in a market where, among other things, the deals all still have financial covenants.
“In the more crowded portion of the [direct lending] market with the more on-the-run private equity names, we see enormous competition. With the regional PE firms – there are 400-500 of them – they don’t command the attention of the major credit shops.”
Portfolio companies will have $8 million to $50 million in EBITDA, while the fund will have 50-60 investments in it. So far, the firm has made 24 investments from the vehicle, which is the initial drawdown fund for sponsored investments. The firm’s BDC, WhiteHorse Finance, has done such transactions since 2010 though.
The firm held another $1.1 billion close in 2017 on WhiteHorse Direct Lending Fund, a fund series that focuses on non-sponsored transactions.
“It is an incredibly difficult market to cover because directly originated non-sponsored deals are massively inefficient,” Aronson said. “The deals have not been prepackaged, the underwriting process takes three to six times as long. It’s a very unattractive market for most lenders because it’s so labour-intensive.
“But you can do 3-3.5x loans and get paid LIBOR plus 600 to 800 basis points. If you bother to do it, the underlying deals that come out are low-leverage transactions that are priced at a premium to anything else you see in the global market.”