Monroe private credit fund nearing first close

The Chicago-based Monroe Capital is set to reach a first close on its new credit fund this week, while also pricing a new CLO and raising equity for its BDC.  

Monroe Capital’s second private credit fund should reach a ‘substantial’ first close this week, PDI can reveal. The capital raise is the latest in a slew of fundraising by the ten-year-old firm.

Private Credit Fund II is the successor to Private Credit Fund I, which closed at $500 million in April 2014. That fund is now 90 percent invested and has delivered net returns of over 13 percent to date, according a source close to the situation. The new fund will follow the same strategy of lending to US mid-market companies across the capital structure including some distressed and opportunistic investments alongside traditional senior and junior debt financings.

The new fund has a target of $600 million which will be levered up to reach a potential capacity of $1.5 billion, Ted Koenig, president and chief executive officer of the Chicago-based mid-market lender told PDI. The hard-cap has been set at $750 million, Koenig said.

“I always set a hard-cap for each fund that we raise as a matter of policy. I am only interested in raising an amount of capital that we can put to work responsibly and generate alpha for our LPs,” explained Koenig.

Investors include US and European institutional investors and the institutions include pension plans, banks, insurance companies, universities, endowments, foundations, family offices, hospitals and non-profit organizations. The firm is also meeting with a range of new investors from South Korea and the Middle East, Koenig added.

As well as the pooled fund, Monroe recently agreed to create a $350 million separately managed account for a large US state pension plan, the source said.  The commitment will be leveraged to reach a total of $787 million of capital.

Last week, Monroe priced its latest CLO, a $412 million vehicle arranged by BNP Paribas. The CLO is compliant with both US and European risk retention rules and is composed of broadly syndicated loan assets. Koenig explained that Monroe decided to do a syndicated loan CLO on the back of demand from investors following a €368 million CLO made up of mid-market assets. That deal was structured in the last quarter of 2014 and also complied with both European and US regulations.

The new structured credit vehicle priced $252 million of notes rated Aaa by Moody’s and AAA by Fitch at 143 bps over LIBOR. The class B Aa2 notes priced at 220bps and the A2 class C notes pay 310bps. The coupon on the Baa3 class D notes is 395bps while the Ba3 notes coupon jumps to 600bps with the lowest rated B2 class F notes offer 700bps. The vehicle includes $37 million of subordinated paper.

The firm invests on a pro rata basis on behalf of its various mid-market lending platforms including third-party commingled funds, separate mandates and its BDC, the NASDAQ-listed Monroe Capital Corporation.

Other capital recently raised includes an underwritten placement of 2.5 million shares by the BDC raising a total of $36.4 million, as reported by PDI. The overnight secondary offering was to raise growth capital for the permanent capital vehicle, which is the number one rated publicly listed BDC in terms of total shareholder return in the last 12 months, Koenig said.

The firm’s other major achievement so far this year was winning the 2015 Small Business Investment Company (SBIC) of the Year award. Koenig and his team will travel to Washington D.C. next week to collect the award at the White House. The US Small Business Administration selects the lender of the year based on a combination of returns achieved for investors and positive impact on the real economy including job creation and support for minority-owned enterprises, Koenig explained.