PDI annual awards 2017: Global winners

The global winners and runners-up of the PDI annual awards 2017

Fund manager of the year

  1. Ares Management
  2. Apollo Global Management
  3. Kohlberg Kravis Roberts
DeVeer: market feels a bit stretched

“We’re not the only global manager, but we’re one of only a few with really deep direct-lending capabilities in the US and Eu- rope,” says Kipp deVeer, director and CEO of Ares Capital Corporation and partner and head of Ares Credit Group. “We got into direct lending early in both regions and we’ve remained very committed.”

In the year to September 2017, Ares had raised almost $7 billion in new eq- uity and debt commitments across its US direct lending vehicles. It also – within the first few days of the new year – completed a ground-breaking strategic  move when Ares Capital Corporation acquired American Capital, further increasing the size of the what is already the largest BDC in the US.

In Europe, where the firm has been operating for 10 years, it saw its direct lending team pass the $10 billion mark in assets under management. The firm also showed its funding power by structuring a €310 million financing package for Dutch gaming company JVH.

Overall, the Ares credit platform had approximately $70.5 billion in assets un- der management at the end of September with $40.7 billion of direct lending AUM – $29 billion in the US and $11.7 billion in Europe. Its private direct lending funds in the US have more than tripled their AUM over a five-year period to around $9 billion as of the same date.

Looking ahead, deVeer says: “It continues to feel a bit stretched and we have been preaching conservatism. There’s some sloppy underwriting around, so we have been increasingly focused on trans- actions where we are the incumbent, utilising our well-established relationships with sponsors and borrowers as a source of repeat business.”

Newcomer of the year

  1. AlbaCore Capital
  2. BC Partners
  3. Blue Torch Capital
Allen: short ramp-up

Having launched in late 2016, London-based fund manager AlbaCore Capital quickly secured investment from PSP Investments providing the firm with a huge vote of confidence in the form of a €500 million commitment. AlbaCore could quickly focus on investing which was, by chief investment officer David Allen’s admission, a case of “somewhat doing things backwards”.

It was also “very helpful”, allowing the firm to develop a track record early on. By the end of the year, AlbaCore was reported by market sources to be well on course to hit and even exceed its €1 billion debut fundraising target.

Allen is a fan of rapid progress. Also, according to market sources, by the end of the year, the fledgling firm had deployed about 70 percent of its capital in around 30 deals and was delivering a return in the low 20s percent gross and 15 percent net (the firm itself cannot comment on fundraising or returns).

“A common complaint with some larger funds is that it takes a long time for them to ramp up. Our ramp-up has been very quick. My goal was to put cash to work and not have capital sitting around,” says Allen.

At the heart of the AlbaCore strategy, and perhaps a major draw for investors in uncertain times, is its focus on capital preservation and staying disciplined. “We have a ‘no arrogance’ policy,” says Allen.

“We will avoid sectors where we don’t have confidence in our ability to make predictions, or where you can win big or lose big. What we did last year was seek simple businesses which were market leaders with predictable revenues and margins. We like that predictability.”

Also appealing to investors in any start-up is a long track record. With around 30 years’ investment experience himself, Allen says he was delighted to “get the band back together”, with a number of former colleagues from Canada Pension Plan – such as Bill Ammons and Deborah Cohen Malka – and Matt Courey from his Morgan Stanley days back in 2001-2002 joining him at AlbaCore. In all, the firm now has nearly 20 professionals.

 

Sponsored deal of the year

  1. Synerlab (Intermediate Capital Group, Goldman Sachs)
  2. State Highway 130 (Strategic Value Partners)
  3. Qlik Technologies refinancing (Ares Management
Pharma niche: ICG and Goldman Sachs target higher returns

When ICG and Goldman Sachs jointly provided a €160 million unitranche pack- age to support the refinancing of French pharmaceutical manufacturing company Synerlab’s existing debt, it brought together two compelling themes: health- care and growth.

Synerlab, a pharmaceutical develop- ment and processing firm, has been in growth mode for some time. Backed by private equity firm 21 Centrale Partners since 2013, by the time of ICG and Goldman Sachs’ financing in July last year, it had seen sales growth increase 30 per- cent and was anticipating taking sales revenue from €130 million per annum to

€200 million over the next two to three years. It also had two pending acquisi- tions in the pipeline.

Healthcare is still considered a niche area of lending but, for those with sufficient expertise, can potentially offer higher returns than when lending to more bread-and-butter type businesses.

Formed in 2001, Synerlab is a pharmaceutical contract development and manufacturing organisation which develops drugs in value-adding niches, specialising in small and medium-sized batches. It has spotted the  opportunity to consolidate in an industry where third- party principals are reducing the number of partners they have.

“We have undertaken a new stage in our development both in France and internationally,” said Pierre Banzet, chief executive of Synerlab, at the time of the deal. “The refinancing will provide us with additional means to pursue our ambitions.”

Synerlab fought off  competition  from many other notable deals last year. Among them, our runner-up State High- way 130 was a rare example of a distressed debt investor (Strategic Value Partners) gaining the rights to operate an infrastructure asset.

CLO manager of the year

  1. CIFC Asset Management
  2. Spire Partners
  3. Fortress

Despite dire predictions it would be brought down by a series of challenges, the CLO market saw them all off with US CLO issuance ahead of 2016’s full-year figures by September.

Falling energy prices, stiffer regulation and compressed yields were all cited as reasons to be bearish on CLOs in 2017, but the top fund managers weathered the storm with CIFC taking the crown in  a close contest.

CIFC completed 12 large CLO transactions accounting for $7.3 billion of issuance last year (as of 30 November). By the time summer rolled around it had already issued $6 billion, with four new CLOs worth $2.9 billion, while also refinancing three of its 2013 vintages and a further three 2014 vehicles.

CIFC also launched a dedicated fund to support its CLOs, the CIFC CLO Strategic Partnership, which supported all four of its newly issued 2017 vehicles and had raised $117.3 million as of August 2017. It will be used to address the new capital requirements of US risk retention rules.

More recently, the firm issued a $1.2 billion  CLO,  CIFC  2017-V,  announced in October, to be managed by the CIFC CLO Manager II partnership with the Healthcare of Ontario Pension Plan.

Spire Partners took the award in 2016 and was nominated again in 2017. While it could not quite match the might of CIFC globally, it has clinched the award for European CLO manager.

Distressed deal of the year

  1. Toys R Us (Angelo Gordon, HPS)
  2. Gymboree (Apollo Global Management)
  3. Liberbank (Bain Capital)
It’s no game: ailing Toys R Us was in need of refinancing

The difficult circumstances surrounding Toys R Us, which became one of the most high-profile bankruptcies in the US last year, exacerbated as it went through the process of seeking Chapter 11 protection in the run up to Christmas, the most crucial time of year for any toy retailer.

Angelo Gordon and HPS Investments joined several other investors to facilitate access to up to $2.3 billion of capital to help Toys R Us refinance its existing debt. It is thought to be the largest ever debt- or-in-possession finance package made available to a retailer and comprised a $1.85 billion commitment from JPMorgan and other banks, along with a $450 million first-in, last-out finance from a syndicate of lenders. This was accompanied by a $450 million term loan and an extra $375 million internal financing for non- bankrupt affiliates.

Angelo Gordon provided $126.72 million of the $450 million FILO loan, while HPS loaned $18.3 million, according to court filings.

The complex financing package fol- lows on from a 2002 private equity buy- out of the US toy retailer by Bain Capital, KKR and Vornado Realty Trust. The $6.6 billion deal was highly leveraged and re- ports suggest Toys R Us was spending up to $400 million per year just to service its debts at a time when it faced increasing competition from generalist retailers like WalMart and online services such as Amazon. Dealing with this fast moving and complex financing situation has earned the deal our distressed award this year.

As our awards are announced, it appears the rescue package is having results, with Toys R Us successfully achieving bankruptcy protection and announcing a plan that will see about 170 of its 880 US stores closed to stabilise the company.

Fundraising of the year

  1. Apollo Global Management
  2. Alcentra
  3. Hayfin

The first time we have had a global fund- raising of the year award is, coincidental- ly, also the year private debt fundraising hit an all-time record of over $180 billion worldwide, according to PDI data. This enormous amount of capital was raised from fewer funds than in 2016, which means 2017 saw some of the largest vehicles ever seen in the asset class. So, it’s no big surprise that our winner’s fund is  a monster.

Apollo raised an enormous buyout fund in 2017, worth $24.7 billion, from which it will allocate 25 percent to distressed debt. Such an amount would constitute a substantial debt fund in its own right and is far above the 1 percent of its Fund VIII. Much of this comes from reduced allocation to buyout activity, indicating Apollo’s growing thirst for debt over equity.

It’s not every year funds this large come along and that such a large pro- portion of it is being assigned to debt investment from one of the world’s best-established private equity players may one day be looked back on as a milestone for the asset class.

Impressively, the mega-fund was raised in just six months after it launched in December 2016 showing strong investor appetite  for  the  mixed  strategy that will cross distressed debt, corporate carve-outs and opportunistic buyouts.

The other firms shortlisted also raised funds worth billions of dollars in 2017, making a significant contribution to the fundraising record. With some  investors expecting 2018 to be an even bigger fundraising year, could we see even larger vehicles dominating this award category next time?