Loan Note: Welcome to PDI’s new fund performance features; BDCs cushioned against adverse forces

An introduction to Private Debt Investor's performance benchmarks. Plus: why BDCs are protected against economic challenges; and new deals struck by Hidden River and Blazehill. Here’s today’s brief for our valued subscribers only.

They said it

“Asian credit has so far delivered robust returns in 2023, with investment-grade credit outperforming high yield”

Taken from Schroders’ Asian Credit 2023 Mid-Year Check-in

First look

Benchmarks: fund quartile rankings and much more (Source: PDI)

Drumroll, please!
With distributions few and far between in 2023, LPs are becoming more selective with their capital. It stands to reason, then, that investment performance and manager track records will be facing greater scrutiny than ever before. As such, new ways to compare and assess this data will be in high demand.

Enter Private Debt Investor‘s enhanced investment performance offering. Our database now enables platinum subscribers to access benchmarks comparing fund-to-fund performance and quartile-rank funds against different strategies, vintages and regions. The release, which builds on fund performance charts introduced earlier this year, means users are now able to access:

Fitch: BDCs face recessionary bumps but have a cushion
Fitch Ratings, in a credit market commentary, discusses where business development companies stand, with Q2 numbers now in the books. The commentary says that earnings for the remainder of 2023 should be in line with expectations despite challenges from economic conditions.

Fitch expects a recession either in Q4 or in Q1 2024. Given differences in underwriting standards and portfolio risk profiles, this will have varying consequences across the BDC sector. But recent earnings may provide a cushion for bumps on the road ahead.

Interest coverage ratios have fallen for some of the underlying portfolio company borrowers. As an example, Ares Capital’s weighted average interest coverage ratio declined to 1.6x in Q2 from 2.4x YoY. Such a fall could put pressure on cash earnings. Relatedly, Fitch expects an uptick in amendment activity and payment-in-kind interest going forward.

As to the cushioning for such expected bumps: numbers vary greatly across the sector. As Fitch points out, Hercules Capital posted net investment income growth of 88.6 percent, year-over-year, for the second quarter 2023. The NII figure for Ares Capital, on the other hand, was 39.5 percent.

Several issuers have increased their base dividends due to excess earnings from the increased interest rates of recent quarters. Eleven of the 20 rated issuers announced dividend increases as part of their Q2 2023 earnings results.

It is likewise becoming more common for BDCs to include supplemental dividends based on excess earnings. Fitch expects that the spread of this policy will stabilise base dividends through cycles.


Hidden River, Taurus invest in children’s fitness
Hidden River Strategic Capital has partnered with Taurus Capital in order to invest in the Little Gym franchise system, which provides physical fitness, gymnastics, motor skills development, and other programmes for children.

Hidden River and Taurus are creating Somersault Holdings to acquire and aggregate seven franchisees within The Little Gym into one management group. The seven locations make Somersault the largest manager in The Little Gym system and the first franchise group to be backed by institutional capital.

Hidden River, based in Philadelphia, closed on its inaugural flagship fund in June 2023, according to PDI data. The closing was on $245 million.

The amount invested in Somersault was not disclosed, but Hidden River says this is the first investment from its inaugural fund, and that it invests between  $5 million and $25 million into US-based positive cashflow businesses.

Hidden River’s co-founder and partner, Kevin Condon, said: “We are excited to partner with existing management and Taurus to grow Somersault through acquisitions and the development of new locations” in a way that “aligns well with our firm’s focus on supporting small businesses with flexible debt and equity capital to support their growth initiatives”.

Blazehill provides debt for top London venue
UK-based credit investor Blazehill Capital has provided a debt facility for The Brewery, a City of London-based corporate events venue.

The loan will enable the venue to further grow its business and provide an increased range of event experiences for its clients.

Jake Hyman, head of originations at Blazehill, said: “The Brewery has hosted many prestigious events so we’re proud to be able to play a role in supporting the iconic venue going forward. As the hospitality industry continues its recovery, having access to additional working capital can be transformational for businesses within the sector.”

The Brewery occupies the site of the former Whitbread brewery on Chiswell Street and dates back to the 18th century.

BBB in further backing for inventory financier
British Business Bank has agreed an increase of £75 million (€88 million; $96 million) to Manchester, UK-based specialist commercial lender DF Capital’s existing ENABLE guarantee.

The transaction follows the £175 million ENABLE guarantee announced in January 2023, taking the total facility size to £250 million.

DF Capital was the first lender to use the ENABLE guarantee programme to support inventory finance. This is a specialist form of lending critical to supply chains, supporting the availability of working capital and improving cashflow across product distribution cycles.

BBB said the commitment may be further increased to £350 million, which would support additional finance of around £450 million annually.

LP watch

Institution: New Hampshire Retirement System
Headquarters: Concord, US
AUM: $10.7 billion

New Hampshire Retirement System has committed $50 million to Ares Pathfinder Fund II, a contact at the pension has confirmed.

This is a new manager for NHRS and enables the pension to diversify its private credit allocation, which is now approximately two-thirds senior direct lending.

The asset-backed Pathfinder Fund II has a target of $5 billion and is expected to have a final close in the first quarter of 2024.

Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments.

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