After almost three decades of private equity investment in the lower middle market, Riverside Company is ready to get into the credit business and has brought on David Dobies, a former TCW managing director and a NewStar Financial founding partner, to help establish the new platform.
The New York-based investment house has started a credit group that also will invest in lower mid-market companies, which Dobies, the group’s managing partner, defined as companies with $5 million to $20 million in earnings before interest, taxes, depreciation and amortization.
“We’ve spent 30 years working in the lower middle market,” Pam Hendrickson, the firm’s chief operating officer and vice chairman for strategic initiatives. “Doing so has allowed the firm to become familiar with the needs of small companies, in particular an increased need for credit.”
The new credit platform will invest in first-lien and senior secured loans along with unitranche financings in deal sizes up to $150 million, with $10 million to $50 million coming from Riverside’s credit group. Dobies said Riverside will put a small portion of its portfolio toward second-lien financings, but will largely shy away from those loans. The firm will not do any unsecured lending, Dobies added.
The loans from its platform would amount to between 40 percent and 65 percent of the target company’s enterprise value. Any direct origination Riverside offers will be done mainly through private equity firms or financial intermediaries companies though a small portion will go straight to the companies.
The firm declined to comment on its fundraising or what types of investors it is currently targeting.
The credit business will target North American companies primarily involved in manufacturing, business services, consumer goods, healthcare, education and training, and software and information technology services, Hendrickson said, though it might selectively do deals in Europe too.
“These types of opportunities with this type of organization come around very rarely,” Dobies said. He explained he brought over David Kilpatrick from Citizens Bank and Tom Gillis from Silicon Valley Bank to work in Riverside’s credit platform. Both Kilpatrick and Gillis worked with Dobies at NewStar Financial.
Banks’ retrenchment from lending due to increased regulation has presented an opportunity for nonbank lending, one of many factors Dobies said led to the creation of Riverside’s credit platform.
Riverside is just the latest in a number of firms that are initiating or expanding credit strategies. In January, Adams Street brought on former Oaktree executives Bill Sacher and Shahab Rashid to launch a private credit group. Earlier this month, the two began raising money for their initial fund, a mid-market lending platform, as PDI exclusively reported.
In April, Onex Credit, a subsidiary of Toronto-based private equity firm Onex Corporation, established a direct lending unit. TD Asset Management in March launched its two new private debt funds for Canadian institutional investors.
Owl Rock is another new kid on the private debt block, even if its founders are anything but. Doug Ostrover, a former GSO Capital Partners founder, and Marc Lipschultz, a former head of KKR head of energy and infrastructure, began the firm earlier this year that will invest across a company’s capital structure.