Loan Note: Leverage and dividend recaps up in the US; Sona launching credit fund

As the holiday season approaches, leverage and dividend recaps are on the increase in the US mid-market. Plus: hedge fund Sona prepares a credit strategy and we bring you the latest key launches and hires. Here's today's brief for our valued subscribers only.

They said it

“There’s a lot of uncertainty with the new [covid] variant, and it’s not clear how big the effects would be on either inflation or growth or hiring.” 

Jerome Powell, chair of the US Federal Reserve, quoted in the New York Times.

First look

Happy holidays to one and all…
We’d like to take this opportunity to wish our readers a wonderful holiday season. There are certainly challenges in the world, which few of us probably need reminding of, but we hope you find comfort in the company of friends and family and are able to look ahead to 2022 with optimism.

This will be our final Loan Note of the year, with the next one due for publication on 6 January 2022. We hope you have enjoyed this new content format through the year, and would welcome your input on ways in which we might introduce improvements (drop a line to if you have thoughts on this).

Until we renew acquaintance in the New Year, you will find plenty of fresh content in our daily digests and on our website – much of it comprising reflections on the year gone by and predictions for the year ahead from leading industry figures. We’d also like to remind you that you can continue to vote in no fewer than 53 categories in our annual awards. The poll runs until 12 January 2022 and may be found HERE.

Higher leverage, dividend recaps characterise US mid-market
A new Debt Advisory Update from financial services firm D.A. Davidson finds M&A activity driving loan volume in US mid-market leveraged finance, with leveraged buyouts and acquisition financings accounting for 65 percent of US mid-market loan volume through the end of Q3 2021.

The study also found leverage in mid-market leveraged buyouts increasing to an average of 5.0x in the first half of 2021, up from 4.0x in 2020. Meanwhile, dividend recaps have returned with some sponsors opting for a dividend recap in lieu of a sale to reap higher valuations down the road.

Despite the higher leverage and increased dividend recap activity, the study finds that default rates are at their lowest since March 2012, a trend that the study’s authors anticipate will continue into 2022.

Hedge fund raising up to $500m for credit
Bloomberg reports that Sona Asset Management is raising as much as $500 million for a private credit strategy.

The hedge fund manager is run by former Highbridge Capital Management executive John Aylward. The fund will reportedly invest in high-yielding securities and provide leveraged financing to companies having difficulties accessing capital. The firm, which will also invest in event-driven opportunities, had previously raised $300 million for a similar strategy from a US institutional investor.

A spokesman for the London-based manager declined comment.

Data snapshot

France makes a comeback. France saw a rapid decline in private debt transactions as a result of the covid crisis but has seen a strong bounce back in activity during the third quarter of 2021. Figures from Deloitte show there were 48 deals in France during the quarter, beating the country’s previous record of 45 deals seen in Q3 2018.


JPMorgan Global Alternatives expands private credit team
JPMorgan Global Alternatives said it appointed Raphael Gonzalez as a managing director and senior investment specialist working across commercial mortgage loans, infrastructure debt and direct lending, according to a release. He joins JPMorgan from Exos Financial, where he worked in structured credit, focused on lending and structuring in commercial finance.

The firm also announced the hiring of Kelly von Schmid from BBVA USA as an originator in the commercial mortgage group. She will focus on sourcing new lending opportunities on behalf of commingled funds and separately managed accounts.

The recent hirings follow significant growth in JPMorgan’s global alternatives commercial mortgage loan business, where it doubled its assets under management to $7.6 billion in the last year. The group is set to hit $10 billion in AUM next year, JPMorgan said.

“Our commercial mortgage loan business has grown significantly over the past year, with strong investor demand for these strategies driven by the attractive yield premiums and diversification potential offered relative to investment grade corporate bonds,” said Jay DeWaltoff, head of commercial mortgage lending, in the release.

JPMorgan Global Alternatives is the alternative investment arm of JPMorgan Asset Management. It offers strategies including real estate, private equity, credit, hedge funds, infrastructure, transportation and liquid alternatives.

WhiteStar launches into European CLOs 

WhiteStar Asset Management – the collateralised loan obligation, structured products and broadly syndicated credit arm of Clearlake Capital Group – has hired Brian McNamara and Conor Power from MacKay Shields Europe Investment Management to launch its European CLO business, WhiteStar Asset Management Europe.

WhiteStar Europe and MacKay Shields Europe said they will work together to assign the collateral management agreements for MacKay Shields Europe CLO 1 and 2, representing total assets under management of €560 million, to WhiteStar Europe. The MacKay Shields European loan investment and operations team are expected to join WhiteStar Europe to create a projected eight-person team based in Dublin and London.

Siguler Guff hires MD and head of credit from Avenue Capital
Global multi-strategy private markets investment firm Siguler Guff has hired Meghan Danaher in a newly created position as a managing director and head of credit distribution.

Danaher joins Siguler Guff with more than 15 years’ experience in the alternative investments space. Previously, she was with Avenue Capital Group where she co-led its capital raising efforts and focused on private credit, distressed and special situations since 2013. She also held roles at Bank of America and Merrill Lynch.

Siguler Guff’s credit platform has more than $8 billion in committed capital and has invested in opportunistic credit-related strategies for more than 20 years. It has a variety of strategies in direct lending, small to lower mid-market businesses, specialty finance, capital solutions, dislocated credit markets and special situations.

LP watch

Institution: Teachers’ Retirement System of the State of Illinois
Headquarters: Springfield, US
AUM: $65.1 billion
Allocation to alternatives: 33.8%

Teachers’ Retirement System of the State of Illinois confirmed $575 million-worth of private debt commitments in Q4, following its December board of trustees meeting.

The commitments were made to four different funds: $150 million to PIMCO Commercial Real Estate Debt Fund II, $150 million to Sixth Street Growth Partners II, $125 million to Apollo Lincoln Fixed Income Fund and $150 million to Cerberus 2112 Loan Opportunities Fund.

A new investment relationship has been established between TRS Illinois and Sixth Street, as it is the pension’s first commitment to the fund manager. The other three institutions currently administer a large amount of the retirement system’s assets.

The system currently allocates 5.7 percent of its total investment portfolio to private debt. The pension’s private debt investments are housed within the wider income portfolio.

The $65.1 billion US public pension’s private debt fund commitments have predominantly focused on North America.

Today’s letter was prepared by Andy Thomson with John BakieRobin Blumenthal and Michael Haley.