IKB closes German direct lending fund on €475m

The firm is seeking to replicate the German model in Western Europe and will launch that fund in the second half of this year.

The asset management unit of German lender, IKB Deutsche Industriebank, has reached first and final close of €475 million on its Valin Mittelstand Senior Debt Fund. The German-focused fund will be followed by a Western European direct lending vehicle, director and head of business development, Istvan Fritsche, told PDI.

Insurance companies Generali, NN Group and Gothaer committed to the direct lending vehicle. A small measure of the overall commitments were raised from pension funds and IKB has also committed five percent to the strategy, said Fritsche.

The new fund will provide loans of between €10 million and €50 million to upper mid-market German companies. The strategy is sector-agnostic but will not invest in industries typically shunned by institutional investors. Loan tenors will be between seven- and 10-years and companies targeted will have a minimum EBITDA of €15 million.

The closed-end fund has a two-year investment period and its life-time spans 10 years, with a two-year extension option, explained Fritsche.

ValinFunds is an IKB-sponsored private debt fund platform. It is Luxembourg-domiciled and run by IKB’s asset management arm. The manager is embedded within the bank and the fund portfolio managers will leverage the German bank’s national relationship manager network to source investment opportunities, giving it an advantage over others seeking to lend to the increasingly popular mittelstand, added Fritsche.

The set-up also allows IKB to maintain its relationship with borrowers, without having to extend balance sheet loans.

The fund will focus on Germany’s strong mid-market companies, many of which are family-run and owned, rather than private equity-sponsored deals, he continued.

The loans will be rated by Euler Hermes and the loan documentation will be drafted under German law, according to a statement by the firm.

For its Valin European Senior Loan Fund, IKB will extend the model to other European countries, focusing on seven- to 10-year senior debt provision for larger mid-market borrowers. It is exploring tie-ups with other European lenders to tap into their origination networks to arrange loans that will be funded by the investment vehicle, rather than by the banks.

It is targeting €500 million and will launch the fund in the second half of 2015, said Fritsche.