Loan Note: Canada the fundraising magnet; manager priorities amid rising rates

A survey finds fundraisers flocking to Canada. Plus: AlbaCore highlights the downs as well as the ups of rising rates; and the UK's Maslow raises a new SME fund. Here's today's brief for our valued subscribers only. 

They said it

“There is a possibility that we could see an increase in defaults in the loan market to a level higher than what we see in the high yield market, which is really unprecedented” 

Taken from a conversation between Anna Szymanski, senior financial writer, and Wayne Dahl, investment risk officer and assistant portfolio manager of the global credit strategy, at Oaktree Capital Management

First look

Targeting Toronto: fundraisers heading for North America’s ‘other’ big market (Source: Getty)

Canada most popular among fundraisers
Canadian investors are the top target for alternative asset fundraisers, according to a new survey from Ocorian, the fund administration specialist.

Fund managers in the US and Europe were asked to name the top five geographies that they would be targeting for fundraising efforts over the next 18 months. Canada was mentioned by 65 percent of respondents, followed by the US (61 percent), the UK (59 percent), the Middle East (57 percent) and Singapore (56 percent).

In our GI 50 ranking of the largest investors in private debt for 2022, three Canadian investors made the top 10: Manulife Financial (third), CPP Investments (fifth) and Public Sector Pension Investment Board (tenth).

The Middle East came first (60 percent) when investors were asked where they would be fundraising for the first time over the next 18 months, followed by Canada (58 percent), the US (56 percent) and the UK (53 percent).

“Our research shows that in a difficult fundraising environment, alternative fund managers are increasingly looking outside their domestic markets and targeting new pools of capital,” said Paul Spendiff, head of business development, fund services at Ocorian.

The survey also found 37 percent of managers expect US investors to “dramatically” increase their allocations to alternatives over the next 18 months, with 36 percent saying the same of UK investors and 34 percent of continental European investors.

AlbaCore: Higher rates ‘cut both ways’
While a rising interest rate environment is welcomed by debt managers offering floating rate loans, AlbaCore Capital Group has cautioned about the challenging operating landscape for companies with high debt levels or with dependence on consumer spending and international trade.

In its latest Credit Market Update, AlbaCore said businesses will need to make “vital decisions regarding their capital structures” to successfully navigate upcoming quarters. The firm said it’s important to keep a close eye on debt maturities and supporting businesses with “competitive and flexible” capital solutions that align with the operating environment.

AlbaCore also stressed the importance of fundamental underwriting, with four main concerns being: deep analysis of downside scenarios, stress tests, ensuring sufficient interest coverage and maintaining stringent documentation.

Hailing the opportunity in Europe, AlbaCore said: “The European economy has beaten expectations as consumer expenditures have held up alongside strong employment figures, a scenario that has driven lower default expectations than are projected in the US market.”

Next stops: Japan and Korea
A heads-up that our Private Debt Investor events calendar, which has already encompassed Singapore and London so far this year, takes us to Seoul and Tokyo between 26-29 June for Japan Korea Week.

The fifth iteration of our annual visit to two of Asia’s most important investor hubs has already attracted more than 300 Japanese and Korean institutions and global private debt leaders.

Among the keynote speakers at the event are Tadasu Matsuo, managing director and head of global alternative investments at Japan Science and Technology Agency; Andrew Lockhart, managing partner at Metrics Credit Partners; and Todd Leland, president of Goldman Sachs International.

If you haven’t already, make sure to book your place now!


KKR looks for direct lenders’ help with Circor deal: Bloomberg

KKR is looking to direct lenders to finance its acquisition of Circor International, according to a Bloomberg News report.

The Bloomberg story says KKR’s own capital markets division is leading the debt financing. The debt ($650 million, as part of the overall cost of the $1.6 billion buyout) will be sold on to other direct lenders, with financing at 600 basis points over the Secured Overnight Financing Rate.

Circor is a Burlington, Massachusetts-headquartered industrial machinery manufacturer, especially noted for pump and valve systems it sells to the oil and gas, aerospace and defence industries.

According to a joint statement the two firms issued Monday, KKR is taking the NYSE-listed firm private, paying $49 per share, which represents a premium of 55 percent over Circor’s closing price at the bell Friday.

The statement quoted Circor’s chair, Helmuth Ludwig as follows: “We believe that this transaction and the immediate cash value it will provide to Circor’s shareholders best achieves the Board’s goal of unlocking the significant incremental value” for those stockholders.

The statement also said that KKR is making the acquisition through its North America Fund XIII.

Representatives of KKR and Circor were not available for comment. The deal is expected to close in the fourth quarter, subject to the receipt of necessary approvals from shareholders and regulators.

Maslow raises fund for lending to UK SME housebuilders
UK-based development lender Maslow Capital has completed a fundraise for a vehicle focused on supporting SME developers.

The fund value was not disclosed but Maslow revealed it will be able to provide loans of between £10 million ($13 million; €12 million) and £35 million at “industry-leading rates”.

It will back small and medium-sized housebuilders with a focus on living sector schemes with developments of 50 to 150 units and leverage up to 70 percent LTGDV and margins starting at 4.75 percent.

Maslow said the fund is a complementary addition to its existing vehicles which can provide up to £300 million per development.

Ellis Sher, co-founder and chief executive officer of Maslow Capital, said: “The SME sector is vitally important for the health of the UK’s housing market, functioning as a vital source of innovation, job creation and economic growth. The strain on SMEs is palpable, particularly for those in the housebuilding sector. These businesses are grappling with higher base rates and an inflationary environment that significantly restricts their ability to grow.”

Double hire for Macquarie
Macquarie Asset Management has made two hires to expand its private credit business. Harlan Cherniak joins as head of infrastructure debt for the Americas, while Gurjit Orjela has been appointed to focus on high-yield infrastructure debt in Europe.

Macquarie said it plans to build its infrastructure debt business in the coming years to meet a need for long-term financing in the sector.

Cherniak has held roles at Forest Road Company and KKR, while Orjela previously worked for Edmond de Rothschild Asset Management, HSBC and the Bank of Ireland.

Two new commitments for UK’s Frontier
Birmingham, UK-based Frontier Development Capital has raised a further £30 million from two existing investors.

The additional funding, which comes from West Midlands Pension Fund and British Business Bank arm British Business Investments, increases the size of its FDC Debt LP fund to £105 million and bring total funds under management to £445 million.

FDC says it approved over £141 million of investment for SMEs and property developers across the UK in the 12 months to the end of March 2023 – up 76 percent on the previous financial year and almost four times the amount it invested four years ago.

The firm, which has offices in Manchester and Bristol as well as Birmingham, supports smaller businesses and property developers in the UK with debt funding of £1 million to £20 million. It has been lending directly to businesses since 2016.

LP watch

Institution: Indiana Public Retirement System
Headquarters: Indianapolis, US
AUM: $46.01 billion
Allocation to alternatives: 3.4%

Indiana Public Retirement System announced a new debt commitment at its May 2023 board meeting.

The Indianapolis-based public pension system committed $150 million to Ares Pathfinder II in Q1 2023. This commitment marks a new relationship between Ares Management and INPRS.

Ares’ senior debt fund makes debt investments into North American and Western European directly-originated opportunities. The 2023 vintage fund is targeting $5 billion in capital and has already raised $3.5 billion.

Today’s letter was prepared by Andy Thomson with John Bakie, Christopher Faille and Robin Blumenthal contributing