PDI annual awards 2017: The Americas winners

The winners and runners-up to the PDI annual awards 2017 in the Americas

Lender of the year

  1. Ares Management
  2. Golub Capital
  3. KKR
Kipp deVeer

Ares Management achieved several landmark events in 2017. The biggest event was its BDC, Ares Capital Corporation, closing its $3.62 billion acquisition of American Capital. Ares also reached a $3.4 billion final close for its debut junior capital fund. “We’ve been focused on being conservative and investing additional capital in our current best companies,” says Kipp deVeer, CEO of Ares Capital and head of Ares Management Credit Group. “The benefits of being an incumbent lender is you are somewhat insulated from the market.”

The 300-plus portfolio companies already held by Ares’ BDC can be an advantage when generating dealflow. More than 40 percent of the firm’s completed transactions in 2017 came from current investments, says deVeer.

The firm’s junior debt fund, Ares Private Credit  Solutions, will let the firm increase its hold-size, Michael Smith, co-head   of Ares’ credit group, told PDI in December. The average ticket size for the fund will be between $150 million and $250 million.

Senior lender of the year

  1. Golub Capital
  2. KKR
  3. Antares Capital
David Golub

Golub Capital defended its title in 2017, posting its third win in a row for this category. Last year the firm raised its largest fund yet, the $2.32 billion Golub Capital Partners 11. The firm also closed its largest deal: the expansion of a loan to Radiology Partners, a New Enterprise Associates portfolio company Golub first backed four years ago.

“Since we first partnered with the company in 2014, we’ve supported their successful growth with a one-stop facility that we have successively expanded,” says Golub president David Golub. “At year end this facility grew to $1 billion – our largest lead deal to date – to give Radiology Partners additional capacity to execute on their acquisition strategy.”

That deal topped Golub’s previous record also set in 2017. In June, Golub led a $675 million one-stop facility that refinanced the existing debt structure of PetVet Care Centers, then an Ontario Teachers’ Pension Plan portfolio company that announced a sale to KKR in December.

Junior lender of the year

  1. Crescent Capital Group
  2. Ares Management
  3. GSO Capital Partners
Careful considerations: Crescent Capital MD Chris Wright

Crescent Capital Group has taken the top spot again after closing on $4.6 billion for its Crescent Mezzanine Part- ners VII fund in January. The  vehicle  is approximately 35-40 percent deployed, says managing director Chris Wright.

Crescent’s mezzanine arm has passed on several deals recently as the credit market continues to reflect looser standards and challenging market conditions, Wright adds. Junior debt pricing continues to be tight; some transactions now stand at LIBOR plus 7 percent when spreads during normal market conditions put interest rates at LIBOR plus 8-10 percent.

“We want to ensure that we do not compromise our credit analysis or change the way we look at companies,” Wright says. “We take a careful look at the company’s cashflow and take into account all the other aspects the banks, management teams and sponsors are trying to sell. There are some legitimate EBITDA addbacks, but we like to think we judge them well.”

Lower mid-market lender of the year

  1. Monroe Capital
  2. Twin Brook Capital
  3. THL Credit
Ted Koenig

Monroe Capital has won this category for the third year in a row after deploying $2.1 billion in 2017. Among the firm’s deals was the increase to $231 million of a credit facility lent to OSG Billing Services, an Aquiline Capital Partners portfolio company, to support the acquisition of Diamond Communications Solutions. “We did the same thing in 2017 that we have done in previous years,” says firm chief executive Ted Koenig. “We tried to find areas where we could generate ‘alpha’ for our limited part- ners and public shareholders. 2017 was a competitive year in fundraising and deals.”

Monroe is now expanding its product set beyond bread-and- butter lower mid-market lending. The firm hired Melody Capital Partners co-founder and managing partner Cesar Gueikian to help lead its new special situations vehicle, which will be raising $1.5 billion, PDI previously reported.

BDC of the year

  1. Golub Capital
  2. Ares Capital Corporation
  3. TPG Specialty Lending
Taking the lead: Golub refinanced PetVet Care Centers

Golub Capital BDC traded on NASDAQ at a premium all year, allowing the vehicle to close two accretive stock offerings at a time when many BDCs were trading at a discount. In addition, the firm received approval for its third SBIC licence.

“We always approach borrower friendly periods the same way: we in- crease our selectivity and we lean hard on our competitive advantages to  win the deals we want to win,” says David Golub, the BDC’s chief executive.

He cited portfolio incumbency as an area of particular strength for the BDC. One example is PetVet Care Centers, which was already a BDC portfolio company when it refinanced its existing debt with the $675 million one-stop loan.

Distressed debt investor of the year            

  1. Oaktree Capital Management
  2. Apollo Capital Management
  3. GSO Capital Partners
West Coast kings: Los Angeles-based
Oaktree wins for the fifth time

Since the inaugural PDI awards in 2013, Los Angeles-based Oaktree Capital Management has yet to be dethroned.

The firm synonymous with distressed debt proved yet again it deserves the title: its Oaktree Opportunities Fund X posted a 25.3 percent net internal rate of return as of 31 December in a relatively benign credit environment. Fund X is 81 percent invested, and the firm’s Fund Xb still has another $8.87 billion to deploy, meaning the firm is well-stocked for the next downturn.

In January, Oaktree joined a consortium of funds including HPS Investment Partners and Beach Point Capital Management in taking control of cancer care provider 21st Century Oncology. In addition, Oaktree is reportedly looking to raise C$300 million ($237.95 million, €194.13 million) for Neo Performance, the remnants of Molycorp, a rare earth mining company Oaktree took control of through a bankruptcy.

CLO manager of the year

  1. CIFC Asset Management
  2. Golub Capital
  3. Antares Capital
Eye on arbitrage : CIFC’s co-CEO Oliver Wriedt

After selling itself in 2016 and closing one deal in December of that year, CIFC Asset Management came rocketing back in 2017, issuing five new CLOs and resetting or refinancing 10 existing deals (as of 30 November).

“We thought market conditions were favourable [going into 2017], and we wanted to try to frontload  our  issuance as much as possible around our view that loans were attractively priced,” says Oliver Wriedt, CIFC’s co-chief executive. “The CLO arbitrage looked compelling as a result of tighter liabilities.”

Wriedt says the firm did three of the five new issuances in the first six months of 2017. The largest deal was its first new issue at

$815.8 million. “We focused on doing the right thing for our equity investors,” he adds, explaining market conditions provided a “great opportunity for the firm to focus on the resetting and refinancing of 10 transactions”.

Infrastructure debt manager of the year

  1. BlackRock Real Assets
  2. Orion Energy Partners
  3. Global Infrastructure Partners

BlackRock’s infrastructure debt group raised at least $2.4 billion across 13 separate accounts in 2017. The firm also raised its first Colombia-focused infrastructure debt fund, gathering the equiv- alent of $280 million from local investors. In addition, the global team deployed $1.8 billion across 23 transactions.

“We have invested in some market deals, but our origination platform, which seeks to invest in transactions directly with the sponsor or in a club group with another few lenders, is how we have deployed in most deals,” says Jeetu Balchandani, head of North America infrastructure debt.

“The dealflow is heavily skewed toward power and energy. In North America, the deregulated nature of the power and energy sectors has meant a lot of dealflow has been in those two sectors. Our deployment was 85-90 percent in those transactions.”

Among those deals was an investment in an operational off- shore vessel in the Gulf of Mexico. BlackRock negotiated and structured the financing and was the sole investor, providing 100 percent of the debt with its co-investors.

Real estate debt manager of the year

  1. Brookfield Asset Management
  2. PIMCO
  3. KKR
Andrea Balkan: ‘safer
alternative’

Brookfield Asset Management closed its fifth real estate mezzanine debt vehicle, Brookfield Real Estate Finance Fund V, on $3 billion. This is more than double the $1.38 billion raised by its predecessor. “We are looking to invest and lend below intrinsic value, and lend in assets that are located in strong markets with barriers to entry,” says Andrea Balkan, a man- aging partner in Brookfield’s real estate debt arm. She cites Boston, Los Angeles, New York and San Francisco as examples of cities Brookfield invests in.

Real estate debt has gained popularity among investors, something Balkan attributes to it being a “safer alternative” to real estate equity as the economy gets further along in the credit cycle, as well as investors getting regular distributions.

“In real estate equity you’re getting your return on the back- end. Our investors are getting a very high current return,” she adds, citing the monthly interest payments on each of their loans.

Deal of the year

  1. Ares Capital Corporation’s acquisition of American Capital
  2. Antares CLO 2017-1
  3. Strategic Value Partners/SH-130
Stateside consolidation: New York-headquartered
Ares bolstered by
purchase

Ares Capital Corporation rang in 2017 by closing its acquisition of American Capital, a $3.62 billion transaction that increased Ares’ position as the largest BDC by assets. Ares has also adroitly managed the legacy American Capital assets. It has since done away with the acquired BDC’s CLO management platform and its private debt operations in Europe.

“These are all assets that we at Ares understand well because of the breadth and diversity of our platform,” says Kipp de- Veer, CEO of Ares Capital. “The integration of ACAS has gone really smooth; there have not been any material downside events that we didn’t underwrite when we announced the acquisition almost two years ago.” Ares had rotated out lower-yielding investments, reducing the $2.5 billion portfolio to $1.7 billion. This took the book’s yield at fair value from 7.4 percent to 7.8 percent, as of 31 December. The firm had realised gains of $85 million.

Fundraising of the year

  1. Apollo Global Management
  2. Owl Rock
  3. KKR

Apollo Global Management turned heads when it raised almost

$25 billion for the latest iteration of its flagship buyout fund, Apollo Investment Fund IX. The firm also raised massive funds on its credit side, including $4.5 billion for its third vehicle targeting European non-performing loans and other financial assets.

Not only will Fund IX deploy capital into buyouts, the firm will

set aside up to 25 percent of the capital for distressed debt. This gives it close to $6.25 billion earmarked for investing in troubled businesses. Alongside Oaktree, Apollo will have a vast war chest to put into companies undergoing financial restructuring or fac- ing a Chapter 11 bankruptcy proceeding.

If recent turmoil in stock markets across the globe is a harbinger of the future, Apollo will be well positioned to participate in some of the largest deals.

Investor of the year

  1. PSP Investments
  2. HOOPP
  3. PennPSERS
Montreal-based PSP holding up the Canadian side

Once again a Canadian firm has been named inves- tor of the year after Canada Pension Plan Investment Board picked up the award in 2016. PSP had a good 12

months, posting a one-year return of 27.5 percent.

“The secret sauce is not being a one-trick pony,” says David Scudellari, PSP’s head of principal debt and credit investments. “We’re not limited to just doing unitranche, we’re not limited to doing just first lien or second lien or mezzanine. We cover the whole spectrum.

“The other thing, from a secret sauce standpoint, is we con- tinue to add to our capabilities. Twelve months in, we added revolver capabilities. We’ve added preferred shares. As we look

forward, one thing we’re looking at right now is adding, to the team with a senior person, rescue financing.”

Law firm of the year

  1. Dechert
  2. Paul Hastings
  3. Ropes & Gray

Dechert has now won this award for three years in a row. The firm served as legal advisor to FS Investments in its move to form a joint venture with KKR to run FS Investment Corporation. FS and current

sub-advisor, GSO Capital Partners, plan to sever ties. The firm also helped KKR’s Corporate Capital Trust’s public listing, one of two to do so in 2017. However, investors are looking more closely at such private vehicles. “The private BDC has become an interesting vehicle that clients are wanting to hear more about,” says partner Thomas Friedmann, citing tax advantages as one reason investors might like a private BDC over a traditional private fund.

 

Placement Agent of the Year

1. Morgan Stanley
2. First Avenue Partners
3. UBS Securities

In a record fundraising year for private debt – credit managers rounded up some $180.1 billion in 2017, according to PDI data – Morgan Stanley played a role in raising several of 2017’s larger funds. It helped PIMCO raise almost $4.2 billion for real estate debt investments via its PIMCO BRAVO Fund III and aided Ares Management in raising its $3.4 billion Ares Private Credit Solutions, which will target larger junior debt deals.

In addition, the New York-based investment bank helped The Carlyle Group raise several funds, including its private BDC and a CLO investment fund. Carlyle, which took its TCG BDC public in 2017, raised almost $300 million for its private BDC, TCG BDC II, and locked down $800 million for third-party CLO investments in its Carlyle Structured Credit Fund.

Speciality finance lender of the year

1. Fortress Investment Group
2. Solar Capital Partners
3. Caisse de dépôt et placement du Québec

In 2017, Fortress Investment Group raised $590 million for its first speciality finance vehicle, Fortress Secured Lending Fund, beating its $500 million target.

“Part of our strategy is to finance companies before they are on the radar of the investment banks and securitisation markets,” says Dominick Ruggiero. “We want to help them take the step from friends-and-family capital and more aggressive hedge fund capital into a structured lending vehicle.” Market sources previously told PDI that there is a growing interest in the speciality finance markets, particularly as LPs are filling out their corporate cashflow direct lending strategies. Speciality finance strategies could be considered the next step in the process of building out a portfolio.

“We’ll continue to see substantial competition,” he says. “I think there’s interest from both investors and credit managers in speciality finance lending as an interesting vertical in the broader direct lending market.

Fund financier of the year

1. Wells Fargo
2. Goldman Sachs
3. Sun Trust/JPMorgan

In 2017, Wells Fargo upped its subscription facility to Owl Rock Capital Corporation, increasing it from $550 million in January and $850 million in November. The larger loan came as Owl Rock, a New York-based BDC started in early 2016, was nearing its $5 billion fundraising goal. The borrower has since surpassed that, racking up $5.44 billion in capital.

The firm also provided the $785 million syndicated loan facility for NXT Capital’s latest vehicle, NXT Senior Loan Fund V. The fund held a final close on $415 million, beating its $350 million target. With the equity commitments and the leverage facility, NXT will have $1.2 billion of investable capital, making it the Chicago-based lender’s largest fund.

Sell-side analyst of the year

1. Wells Fargo
2. Jefferies
3. Raymond James

Last year, competitiveness was a marquee theme as more players entered the private credit space, making groups like the Wells Fargo private credit research team even more valuable. When analysing and rating credit managers, Wells Fargo Securities managing director Jonathan Bock says he puts an emphasis on “prudent balance sheet management as well as willingness to leave [credit] spread on the table in order to protect potential downside”.

The successful managers set themselves apart last year in a competitive deal environment characterised by ever-inflating EBITDA definitions, looser covenants and shorter timeframes allowed for due diligence.

“A lot of them got smart and decided to promise less of a return or diversify into more specialised lending niches,” says Bock. “If you have a unique set of loans, you take pressure off your traditional sponsor finance deal folks in a highly competitive environment.”