The TCW Group plans to create a business development company with the possibility of going public, something the firm lacks with its current BDC, which is private.
The Los Angeles-based asset manager asked the US Securities and Exchange Commission in an application filed last month for permission to let investors in the firm’s current BDC, TCW Direct Lending, swap shares in that entity for the same number of shares newly formed vehicle, dubbed the “Extension Fund”. Direct Lending has garnered total capital commitments of $2.01 billion as of 10 April.
“The company is uniquely situated. The company’s organisational documents do not permit the company to conduct an initial public offering of its [limited liability company] units,” the application read. “This framework resulted from extensive negotiations with several of the company’s investors, who as a commercial matter, were not prepared to authorise the company to proceed with an initial public offering of its units without obtaining the approval of each investor.”
If the SEC approves the transaction, Direct Lending would still operate for its finite period, which would be in September 2020, six years after the private BDC began operations.
To effectuate the transaction, at least 25 percent of Direct Lending’s investors holding outstanding equity would need to participate and the offer would need to be open for at least 20 business days. The Extension Fund would have the same fees as Direct Lending, which charges a management fee of 1.5 percent and a 20 percent incentive fee. It lists a hurdle rate of 9 percent.
Direct Lending’s portfolio consists of 25 debt investments and one equity investment as of 31 March. The company’s largest exposure, at 11 percent are to the hotel, restaurants and leisure sector and the software sector. According to its quarterly filing, Direct Lending’s debt investments stood at $1.08 billion.