You’ve got a growing business. You’re transferring ownership. You’re completing a buyout. You need capital. We’ve got you.
Direct lending is an avenue for companies like yours to access capital as an alternative to the syndicated loans or senior floating-rate capital traditionally provided by banks.
Direct lending loans are provided by "non-bank" lenders, such as institutional investors.Direct lending loans are primarily first lien, senior secured floating-rate loans, but can also be second lien, revolvers, or accordion/delayed-draw facilities. They have flexible amortization profiles and final maturities that usually range from 5 to 6 years.
The direct lending market has become a permanent source of capital for borrowers. It is largely a leveraged buyout-driven, sponsor-led market, but relies on private placement-style credit and terms underwriting.
We target the middle market, which is typically defined as companies with EBITDA of $10 to $50 million. Our regional office network enables companies to access growth capital globally, across the U.S., Canada, UK, and Europe.
Our investment focus
- Middle-market companies with attractive growth prospects and positive cashflow
- Typically, EBITDA of $10 - $50 million
- Generalist industry focus with an emphasis on business services, consumer products and services, distribution and logistics, food and beverage, energy, packaging, chemicals, and niche manufacturing companies
- Management teams and owners with an economic stake in the company’s success
- Recapitalizations/dividend recapitalizations
- Shareholder buyouts
- Generational transfers
- Non-sponsored management buyouts
- Sponsored leveraged buyouts
- Cross-border financings
- $25 million - $400 million
- Ability to do multi-currency, cross-border transactions
- Flexible prepayment terms
- Relationship-focused capital provider
- Floating rate
- Revolvers, accordions, and/or delayed-draw term loans
- 1%-10% yearly amortization with an excess cashflow sweep
- Typical maturities of 5-6 years
OUR TWO CENTS
Hear Jeffrey Dickson, Matt Harvey, and Sarah Bittner provide an overview of Direct Lending.
Benefits of direct lending loans
Direct lending capital offers five key benefits:
1. Larger Sums of Capital
For many companies, direct lending has essentially replaced bank financing because they can receive larger amounts of capital from fewer parties.
2. Lower Interest Rates and No Control Dilution
With direct lending, interest rates are lower than more junior types of capital, and unlike raising equity, you don’t have to give up a percentage of ownership.
3. Speed in Execution
Direct lending loans can be closed quickly as there are fewer investors involved. A streamlined approval process can enable deals to close in as little as 4 to 6 weeks.
4. Complement to Existing Financing
Direct lending loans also help diversify your sources of capital and capital structure, satisfying needs that other types of capital are not able to. Since they are shorter term, direct lending loans are a viable complement to longer-term financing. Diversification of funding sources is particularly important during market cycles when bank liquidity may be tight.
5. Flexible Payment Terms
Direct lending is considered "amortization light" with 1% to 10% amortization per year, with excess cashflow sweep.
We have committed over $4.8 billion of direct lending capital to our partners as of 30.9.19.
Direct lending alternatives
The primary alternative to the direct lending market is the broadly syndicated market. Here are some of the advantages and disadvantages for each:
“Pricoa Private Capital moved quickly to evaluate and propose a capital structure that best supported our strategic expansion project. Their diligence, speed, and certainty of delivery were all critical to completing the transaction.”
Jeffrey Bartoli, Managing Director, Centre Partners Management
“The market can be very transactional. It’s short term and somewhat fleeting in terms of relationships – as opposed to what we’ve done for a long time. We take a longer-term perspective.”
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Pricoa Private Capital (‘PPC’) is a trading name of PGIM, Inc. (‘PGIM’), the principal asset management business of Prudential Financial, Inc. ('PFI'). Pricoa Private Capital registered in Ireland as Pricoa Capital Group (Ireland) Limited, Pramerica Drive, Letterkenny Business and Technology Park, Letterkenny, Co Donegal, F92 W8CY, Ireland. Registered in Ireland under company number: 635793. Authorised and Regulated by the Central Bank of Ireland. In the United Kingdom (UK), and various other jurisdictions in Europe, certain investment activities are undertaken by Pricoa Capital Group Limited, authorised and regulated by the Financial Conduct Authority, (registration number 172071). Pricoa Capital Group Limited is registered in England No. 1331817. The registered office is Grand Buildings, 1-3 Strand, Trafalgar Square, London WC2N 5HR. PPC, Pricoa, PGIM and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide. PFI of the United States is not affiliated with Prudential plc, a company incorporated in the United Kingdom.
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