Shard Credit Partners has held a first close of its UK lower mid-market debt fund on £90 million of its £250 million target.
The fund is the inaugural vehicle of Shard Credit Partners, which was set up by four leveraged finance professionals led by chief executive Alastair Brown to provide debt to UK SMEs.
“There are a very small handful of participants providing debt to the lower mid-market compared to larger segments.”
Alastair Brown, chief executive, Shard Credit Partners
Shard Credit Partners Fund I launched this year and expects to hold a second close in Q2 2018 with a final close by the end of October 2018. The fund has a target of £250 million and a hard cap of £300 million.
Shard is looking to invest in companies in the UK lower mid-market, which it defines as firms with an enterprise value of below £50 million and between 50 and 249 full-time employees. Its typical loan range will be in the £5-15 million range with a maturity of three to seven years.
It will lend to firms across a diverse range of industries and across the UK’s regions.
Brown said these firms are finding it increasingly difficult to access long-term financing from banks and have so far been largely neglected by private debt funds.
“There are a very small handful of participants providing debt to the lower mid-market compared to larger segments,” he explained. “The lack of development in this space makes the return opportunity more interesting.”
“Upper mid-market returns are under pressure due to intense competition, and so are the terms and covenants, but in the lower mid-market we’re able to operate a full set of covenants and price at Libor plus 8-12 percent.”
He added that there are over 33,000 SMEs in the UK lower mid-market which will provide good deal flow opportunities, as will the more than 200 private equity buyouts in the segment.
The fund will aim to make between 8-10 transactions per year with a mix of private equity sponsored and non-sponsored deals. Approximately two thirds of deals will be sponsored with the remainder non-sponsored. Shard will target returns of 12-14 percent gross IRR, and 10-12 percent net IRR.