Pemberton establishes credit opportunities strategy

The firm is attempting to fill the void created by a drop off in cross-border lending in the European mid-market by offering flexible capital solutions.

Pemberton is looking to tap into a growing number of opportunities created by a dearth of cross-border lending following the introduction of regulatory constraints on the banking sector by partnering up with financial institutions to offer flexible capital solutions to mid-market companies.

The firm has launched a strategy that invests up and down the capital structure, providing senior and unitranche debt for struggling companies and junior portions for strong performing companies where the bank takes the senior role.

Approximately 45 percent of the investments will be in senior loans, around 40 percent in second lien instruments and the remaining 15 percent in junior portions. Ticket sizes range between €30 million and €75 million and targeted companies have an EBITDA ranging between €15 million and €75 million.

The firm declined to provide a fundraising figure and a target return, although representatives for the firm said it expects to reach yields “substantially higher” than the unitranche market, which is currently returning around 8.5 percent.

Under the framework, Pemberton is looking to increase exposure to companies not backed by private equity sponsors through partnering up with banks to provide capital to clients. Historically, a local bank may enlist the services of a foreign bank to provide a mezzanine layer of debt but that has dropped in the decade following global financial crisis as Basel III regulations have made the supply of junior debt more expensive and has pushed banks to intensify their focus on domestic markets.

Moreover, the firm said the strategy will ensure it is steering clear from some of the recent trends in the European credit market which has seen leverage multiples go up and pricing drop as managers hunt for yields in the increasingly competitive sponsored market by instead offering customised solutions to companies not backed by sponsors.

Symon Drake-Brockman, managing partner of Pemberton, said: “We are expanding the lending capacity we have generated through our senior debt strategies to provide greater opportunities throughout the capital structure.

“With this new strategy, we will continue our commitment to delivering the risk-adjusted returns investors expect and the capital European companies need,” he added.

Pemberton manages a European mid-market senior debt fund and a sterling denominated fund, which targets both senior and unitranche opportunities.