PDI Annual Awards 2016: Americas winners

1. Golub Capital
2. Ares Capital Corporation
3. GSO Capital Partners

What’s better than winning lender of the year? Winning it two years in a row, like Golub Capital. As in 2015, the mid-market lender had a successful 12 months across its fundraising and origination efforts.

Golub originated $8.8 billion in new loans in 2016, with roles in the standout Pet Valu and historic Qlik debt transactions. The firm also originated a number of similarly sizable loans in the $150 million-$300 million range, a size that used to be done only through syndications and not buy-and-hold players.

Golub imputes another strong year to its consistency and “win-win partnerships”, repeatedly working with the same sponsors, lenders and investors. Over 90 percent of the firm’s deals in 2016 were with repeat sponsor clients and about half were with companies in which Golub was the incumbent lender.

“We view these awards as a testament to our shared success model,” says David Golub, chief executive. “The success we have had with these awards is a reflection of how well that system has been working and how powerful our focus on win-win partnerships can be.”

1. Golub Capital
2. Ares Capital Corporation
3. Guggenheim Partners

David Golub says the private debt market shifted from lender-friendly to borrower-friendly over the course of last year. That is to say, leverage went up, spreads went down and terms became more borrower-friendly due to a combination of lower M&A activity and shrinking supply, because of new funds coming into the mid-market.

But Golub still had a great year from the standpoint of funds raised, particularly its senior vehicles. New commitments from investors were over 50 percent higher than the prior year, which was itself a record.

The firm held three closes on its 10th fund focused on senior debt across North America. By final close this January, that fund had culled $1.76 billion in commitments, marking Golub’s largest fund yet. The predecessor, GCP 9, closed on $970 million in July 2015. Last year, more than 25 percent of the firm’s overall deal volume was in add-ons and the firm expects to repeat that amount in 2017.

But Golub predicts choppier waters for credit lenders in the mid-market this year, stemming from the continuation of credit inflation that started in 2016. “So far in 2017, this story continues,” he says.

1. Crescent Capital
2. GSO Capital Partners
3. Carlyle Group

Crescent Capital’s mezzanine funds invested approximately $1 billion last year, including 20 investments split between new and add-on deals. The Los Angeles-based firm closed its seventh and largest mezzanine fund, raising $4.6 billion in commitments, surpassing the initial $3 billion target. That was $1.2 billion more than the previous vehicle.

“We have a regular, but very selective, dealflow,” says Jean-Marc Chapus, co-founder and managing partner at Crescent. “The firm’s DNA is credit, and our first goal is to protect capital.”

He adds that the annualised default rate for the private credit businesses over the last 25 years is less than 1 percent.

By the end of December, the firm had $25 billion in assets under management, with $11 billion invested across its private credit platform.

Chris Wright, managing director at Crescent, says the firm expects to see similar volume in 2017, but adds it’s hard to predict how the market will shape out this year.

“At the beginning of February, broadly speaking the credit markets are extremely tight,” says Wright. “But mezzanine offers a lot of flexibility to sponsors and issuers, especially when it comes from funds like ours that are ‘buy-and–hold’ investors.”

1. Monroe Capital
2. NXT Capital
3. Twin Brook Capital Partners

Monroe Capital saw increased demand last year for its “low volatility, non-core related products”, while continuing to grow its market share of the mid-market, says Ted Koenig, president and chief executive.

Koenig says the lower mid-market is harder for asset managers because it demands many more man-hours. “This requirement is hard for new managers, and even existing managers, to staff up, originate, and underwrite credit transactions. However, there will always be alpha in that market for good asset managers.”

Monroe closed its second credit fund, Private Credit Fund II, on the hard-cap of $800 million, with lending capacity up to $1.3 billion, last year. The firm targets companies in the $3 million-$30 million EBITDA range.

The Chicago-based firm also grew its Americas originations team with the hires of Steve Hinrichs, Marc Adelson, Mark Sturrock and Marc Price. Sturrock will lead Monroe’s newly opened office in Toronto.

Monroe closed 64 direct loan transactions, involving $1.4 billion in investment funding, in 2016. The firm ended last year with $4 billion of assets under management.

1. Golub Capital
2. Ares Capital Corporation
3. Owl Rock Capital Partners

As mentioned above, David Golub says his company has consistency, and that is what earned the awards this year (and last). Sure enough, Golub Capital BDC consistently out-earned its dividend each quarter last year, while growing net asset value per share and paying out 32 cents per quarter, with relatively low volatility.

The company’s NAV was $15.74 per share at 31 December, only slightly down from $15.96 at 30 September. The firm’s net investment income was $16.9 million or $0.31 a share for the last quarter, slightly up from 31 December 2015, when the firm’s net investment income was $15 million.

The BDC did a total of $599.8 million in new mid-market originations over 2016. Golub BDC is going to continue to focus on one-stop loans in 2017.

Looking ahead, Golub doesn’t expect the new US government to loosen bank regulations enough to pressure mid-market lenders this year. And he won’t worry even if they do.
“If I am wrong, I don’t anticipate that the impact on Golub Capital would be terribly significant,” he says. “If we see some banks come back, we believe this will have a bigger impact on non-bank syndicators.”

1. Oaktree Capital Management
2. KKR
3. Cerberus Capital Management

Oaktree, the Los Angeles-based asset manager, grew its assets under management by 3 percent year-on-year to $100.5 billion as of 31 December. The firm raised $11.6 billion in capital in 2016, making it the 10th consecutive year in which the company has raised $10 billion or more.

Last year also saw the departure of Oaktree’s chief financial officer David Kirchheimer, who said farewell on the third-quarter earnings call, saying he was proud “to have led an employee team that is second to none”.

Jay Wintrob, chief executive, said on the firm’s fourth-quarter earnings call that the company has a patient and disciplined investment approach in the distressed market, allowing it to profit even in rising markets.

Oaktree is well positioned for investment opportunities “triggered by a general market downturn or idiosyncratic developments” this year, he added.

The firm has over 60 percent of its assets under management in long-term investment vehicles and ended last year with $20.8 billion of dry powder.

1. Golub Capital
2. GSO Capital Partners
3. CVC Credit Partners

Golub Capital issued $1.6 billion in CLOs from 1 January through 21 November last year, bringing its total CLO issuance to $12.1 billion since 2005.

Last October, the firm redeemed its first broadly syndicated loan CLO, Golub Capital Management 2007-1, which Creditflux listed in its top 10 CLO list. The deal returned an average of 30 percent on an annualised basis since inception and made 11 distributions greater than 40 percent.

“Many CLO managers struggle to satisfy the interests of different tranche holders within the CLO,” says David Golub, chief executive. “But we’ve succeeded in solving that puzzle with low credit losses and reliable, consistent performance.”

A significant amount of capital flowed into broadly syndicated loan and other mid-market lending vehicles, which made the lenders and investors generally more optimistic about the economy and the likely pace of economic growth, says Golub.

But he cautions that the mid-market will likely see a tough competitive environment in 2017, stemming from credit inflation. And if so, the firm is going to focus on deals “where we can lean on our competitive advantages”.

“We would rather slow down loan originations than make a bunch of loans that turn into bad credits,” he adds.

1. BlackRock
2. Global Infrastructure Partners
3. AMP Capital

BlackRock executed a unique deal in Mexico when it closed the sale and leaseback agreement with Pemex Exploración y Producción and Marverde Infraestructura through the issuance of $531 million of senior secured notes due 2031 and used additional senior financing. The deal was done in connection with KKR’s acquisition of midstream oil and gas assets formerly owned by Pemex.

The firm, led by global head of infrastructire debt Erik Savi, also lent C$125 million to Montreal-based McInnis Cement, part of a C$250 million facility in which CDPQ also participated. The deal helped bankroll an industrial cement project in Quebec, which was the first completed of its type in eastern Canada in more than 50 years. The firm also raised $281 million in US separate accounts. BlackRock ended the year with a key hire when it added Brian Chase as a managing director in its alternative solutions group, which invests in infrastructure. Previously, Chase was at London-based placement agent Campbell Lutyens.

1. Blackstone
2. Lone Star Funds
3. Walton Street Capital

Blackstone closed its $4.5 billion Blackstone Real Estate Debt Strategies III fund in 2016, one of its key investment vehicles alongside Blackstone Mortgage Trust, giving the firm more firepower to deploy over 2017. And 2016 wasn’t an easy year.

“I think the big theme [from 2016] was the volatility in the markets and what that meant,” says global head of real estate debt strategies Jonathan Pollack. Blackstone turned to commercial mortgage-backed securities in the first half of the year as a result of the market tumult, he explains.

In 2016, the firm invested at home – New York City. Investments in the Big Apple included parts of Manhattan, Brooklyn and the Long Island City neighborhood in Queens. Blackstone likes “this idea that these markets are improving and rents will be higher in five years than they are today”, Pollack says.

1. Spotify – TPG/Dragoneeer Investment Group
2. Qlik Technologies – Ares Capital Corporation
3. eResearch Technology – Partners Group

Spotify made headlines in April when the firm raised $1 billion in convertible debt financing, half of which was financed by TPG, founded by David Bonderman. Two TPG platforms, TPG Special Situations Partners and TPG Growth, and hedge fund Dragoneer each put in $250 million. Goldman Sachs clients reportedly funded the remaining amount.

The Swedish music streaming company has been expected to go public in 2017 and in the summer reportedly hired a head of investor relations. In early February, however, technology industry news outlet TechCrunch reported it may be delaying an initial public offering for another year. Terms of TPG’s deal are tied to an IPO. The lenders can reportedly convert their debt to equity, once the company goes public, at a 20 percent discount and, if an IPO doesn’t happen within a year, the lenders’ discount increases by 2.5 percent every six months.

The firm’s reported interest rate is also tied to the IPO timing, with an initial pricing of 5 percent that will increase by 1 percent until Spotify goes public or it hits 10 percent.

1. Oaktree Capital Management
2. GSO Capital Partners
3. Barings

Oaktree Capital Management takes home top honours again in the dash-for-cash category. The firm pulled in $11.6 billion in 2016, the majority of it coming from outside the US, making it the 10th year the firm has pulled in more than $10 billion.

The firm also found luck in the high-net-worth client category along with its sub-advisory relationships, through which the Los Angeles-based distressed debt behemoth raised $4 billion of that total, according to the fourth-quarter earnings call transcript.

It also has raised more than $11.3 billion across its Opportunities X and Xb funds, the latest incarnations of Oaktree’s flagship distressed debt fund. The firm won’t have a shortage of vehicles over the next year either, the transcript showed. Oaktree will be in the market with a raft of new vehicles, including its first infrastructure fund and a European control-investing fund.

1. Canada Pension Plan Investment Board
2. Ontario Teachers’ Pension Plan
3. State of Wisconsin Investment Board

Canada Pension Plan Investment Board deepened its commitment to private credit when it invested $17 billion in the asset class in fiscal year 2016, more than double its 2015 commitment of $8 billion. Even as recently at 2010, the firm set aside only $900 million.

John Graham, managing director and head of principal credit investments, says: “Investments made through our [PCI] group are a good fit for CPPIB as they add an additional layer of diversification to the portfolio and allow us to leverage our relationships to find larger and more tailored situations, resulting in attractive risk-adjusted opportunities.”

The Toronto-based fund anticipates upping its exposure to the world’s up-and-coming economies. “[The group] remains focused on building the group’s direct investing capabilities,” says Graham. “In the near term, the group expects an increased number of opportunities in both emerging and developed markets. General [gross domestic product] trends in emerging markets will require more demand for credit to support overall growth.” In November, CPPIB sold a 16 percent stake in Antares to Northleaf Capital Partners, giving Antares access to additional pension fund investors and Northleaf access to the Antares’ origination platform.

1. Dechert
2. Paul Hastings
3= Proskauer Rose
3= Ropes & Gray

Dechert was involved in many of the mergers and acquisitions transactions that reshaped the private debt landscape last year, one in which the markets came tumbling in and rocketing out.

“At the beginning of the year there was obviously a lot of dislocation and repricing of assets,” Dechert partner Tom Friedmann says. “That led to a lot of interesting consolidation transactions.”

Consolidation was the buzzword for the year in BDC-land. Several transactions over 2016 thinned out the field, including Cion Investment Corporation’s $277 million acquisition of Credit Suisse Park View BDC. Friedmann and other Dechert attorneys represented the buyer.

“It was an interesting transaction because they had minority shareholders involved,” he says. “It was technically harder than the size indicated. There’s a lot of complexity in BDC mergers due to regulatory [provisions] and shareholders.”

The firm was also involved in the sell-off of part of American Capital’s portfolio following its acquisition by Ares Capital Corporation. Dechert represented Marble Point Credit Management in the acquisition of American Capital’s CLO arm.

1. Citi
2. Jefferies Private Capital Group
3. Eaton Partners

Citi helped raise a number of funds including the LCM Credit Opportunities fund, which saw a commitment of $350 million from the Arizona State Retirement System, in a competitive atmosphere.

“There are more managers and capital in the market today at a time when we are further in the credit cycle,” says Nithin Johnson, head of Americas for Citi’s international fund distribution, the firm’s funds placement business.

The fund garnered another $150 million from the Florida State Board of Administration and $100 million from the Teachers’ Retirement System of the State of Illinois.

“The US allocators have a higher return hurdle versus their European counterparts, but both pay close attention to the risk-adjusted return,” says Peter Arnold, the global head of international fund distribution. “It also speaks to our holistic dialogue with clients beyond just their growing alternatives bucket, but in helping customise solutions that meet their broader asset allocation needs.”

Johnson says Citi started the placement business in 2009 with a focus on alternatives and had significant success in the private debt space due to Citi’s “historical leading franchise in credit & fixed income”.