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THL credit team plots public leap

The Boston buyout firm may allow LPs in a private credit-opportunity fund to cancel participation if they agree instead to a planned $300m listed credit vehicle.

Five years after attempting and failing to create an affiliated publicly traded “business development company”, Boston-based THL Partners has filed to take public THL Credit with a goal of raising as much as $300 million for debt and equity placements in middle market companies.

According to a US Securities and Exchange Commission filing, the advisory entity for THL Credit has an unusual plan to allow limited partners in an existing private fund called THL Credit Opportunities to cancel their participation in that fund in exchange for purchasing shares of THL Credit. The Credit Opportunities fund has $171 million in drawn and undrawn capital commitments and three years left in its investment period, according to the filing.

Following the IPO, the team overseeing the private Credit Opportunities fund will focus on managing the existing seven investments made to date from that fund but not on new deals on behalf of the fund. The advisory firm would not be restricted from managing additional funds in the future, according to the filing.

The move by THL, formerly called Thomas H. Lee Partners, to create a BDC comes five years after an earlier effort did not make it to a public listing. In 2004 THL, along with many other major buyout firms including The Blackstone Group, Kohlberg Kravis Roberts, Evercore Partners and Gores Technology, attempted, filed to create a BDC after seeing Apollo Global Management raise $930 million in the IPO of  Apollo Investment.

The THL credit team is overseen by James Hunt, who was chief executive of Bison Capital and, before that, with SunAmerica Corporate Finance, later acquired by AIG.

In the SEC filing, THL Credit says it will continue to benefit from an affiliation with the buyout firm because of “access to the contacts and industry knowledge of THL Partners’ investment team”, allowing it to “enhance its transaction sourcing capabilities and. . . consult with the THL Partners team on specific industry issues, trends and other matters to complement our investment process”.

The firm argues that among the advantages of the IPO-bound platform is the lack of a “legacy portfolio”, freeing the firm from distractions and positioning it to do deals based on “current rather than historical market conditions”.

If THL’s credit-platform IPO is successful, it may launch a wave of similar efforts as rival GPs seek to source public capital for what they view as historic investment opportunities.

A business development company is a specific designation of securities firm regulated by the SEC. Typically these companies have pursued mezzanine and senior debt investment strategies. Those active during the top of the credit cycle, such as Allied Capital, American Capital and Apollo Investment, have seen their share prices collapse in recent months.