Loan Note: Ares boasts another mega deal, SME funds offer help, Yieldstreet’s private debt offering

Ares and friends participate in a billion-pound finance, £1.875 billion to be exact. Plus: SME funds are springing up to help firms get through the coronavirus crisis and Yieldstreet has launched a private credit vertical for its retail investors.

They said it

“Pre-crisis, high yield bonds and leveraged loans were characterised by falling underwriting standards, leaving a legacy of poorly protected instruments. The widespread use of aggressive EBITDA addbacks means that most leveraged transactions were already going to meet projections before the crisis damaged the economic outlook”

Stuart Fiertz, co-founder and director of research at Cheyne Capital Management, gives his views on which areas of the credit market will see dislocation as part of the coronavirus crisis

First Look

The new banks

Debt funds are marching into bank territory

Ares Management has set another record for private credit lending, bringing it firmly into the same territory at the major banks. Last year, the US-based debt fund manager hit headlines after it made a £1 billion ($1.2 billion; €1.1 billion) loan to UK IT company Daisy Group and now it says it has arranged the largest ever unitranche finance in a transaction worth £1.875 billion.

Ares didn’t act alone this time and brought in a panel of lenders including KKR and HPS Investment Partners to arrange £1.575 billion of unitranche and a £300 million capital expenditures facility for UK insurance broker Ardonaugh Group.

While these kind of huge financings aren’t exactly common for private debt funds, they are starting to become a feature of the landscape. Furthermore, some market commentators reckon banks are going to be limited in new lending as a result of the economic downturn, which could offer more opportunities for debt funds to muscle in on their turf.

Helping SMEs survive covid-19
Private debt continues to expand beyond its mid-market corporate lending roots with two funds focused on European SMEs announcing a close last week. BNP Paribas Asset Management closed its second SME lending fund on €576 million, while new entrant ODDO BHF Asset Management announced the first close of its inaugural SME fund on €131 million, focused on investing in Germany’s family owned Mittelstand companies.

SMEs have been hard hit by the coronavirus crisis and were already struggling to access finance following the 2008 GFC, which saw banks withdraw from financing riskier businesses. Also lacking the ability to raise money in bond markets, clearly SMEs need to look at new ways to survive and grow as the economy recovers. The European Investment Fund has played a role in investing in SME funds as it views them as a major part of improving finance access for small businesses.

Data snapshot

Coronavirus comms. The covid-19 crisis is putting pressure on firms as usual work routines are disrupted. Seward and Kissel asked private markets firms how they’re adapting to conducting investor due diligence in these circumstances and found a big rise in the use of video conferences and conference calls to stay in touch with LPs.


Retail investing platform Yieldstreet expands into private credit
There’s a party going on in the US equity markets, so why should individual investors be left out of all the action in the private credit markets? That may have been the impetus for Yieldstreet, a digital wealth management platform that goes directly to the retail investor, to expand its menu of offerings to private business credit, a $1 trillion a year industry. “The world has really changed in the last four months,” said Yieldstreet president Michael Weisz. “Growing businesses need access to capital even more as the pandemic has disrupted their access.” Yieldstreet, which has funded more than $1 billion of investments in real estate, legal, marine and art verticals through its platform since its founding in 2014, expects to deploy hundreds of millions in capital to high-growth companies, making flexible-term loans between $3 million and $30 million in commercial term receivables, inventory purchase orders, consumer instalment loans and other facilities.

Do you know a Rising Star?
There is just one day left to submit nominations for PDI’s 2020 Rising Stars. We’re keen to recognise the best young talent in private credit but they can’t be named a Rising Star if you don’t nominate them! You can find all the details of how to nominate here. You can also find out what last years’ Rising Stars think about how the industry can adapt to the covid-19 pandemic.

Today’s letter was prepared by John Bakie with Robin Blumenthal

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