Twin Brook Capital Partners have made sponsored lower mid-market deals their wheelhouse because of the capabilities a private equity sponsor brings to the table and the sound documentation normally backing the deals, firm founder Chris Williams told PDI.
Private equity sponsors bring “very intense” due diligence to a transaction, he said, allowing Twin Brook to “leverage off a lot of the third-party materials that they bring”.
Twin Brook also benefits from the quality governance sponsors provide, Williams explained, citing examples of reporting or changing out management at the portfolio company. “They’ve done this; they understand the playbook,” he said.
The direct lending firm, part of Angelo, Gordon & Co., hunts for deals in the lower mid-market, which the firm defines as companies with $30 million in EBITDA or less, citing favourable transaction structures and a less-crowded space.
“We think it’s a different market than the upper half of the middle market. There are different sponsors in that part of the [lower mid-market]. The diligence processes are more thorough – 60 to 90 days on average to book a single asset. We think there’s less competition.”
When dealing with documenting the loan and financial covenants, Williams called it more of a “lender friendly market”. He said a typical lower mid-market deal comes with three or four financial covenants.
He also added Twin Brook likes the long-term commitment that transactions in the lower mid-market normally have.
“Also, we like that once you book a credit and you come to understand a company, you have the ability to grow with that credit as the sponsor builds the business over time,” Williams said.