(Bloomberg) — Golub Capital is increasing its private lending business, people familiar with the matter said, the latest evidence of growing interest among some industry players in developing a secondary market for direct lending.
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The company traded about $1 billion worth of private debt in the first half of the year, said the people, who asked not to be identified because they were not authorized to speak publicly. Industry insiders say Golub is one of the most active players in the space, which includes firms such as JPMorgan Chase & Co. and others.
Buying and selling of loans remains relatively rare in the $1.7 trillion private credit market, as most lenders typically hold the debt until maturity. Still, there are signs that transactions are increasing as investors look for ways to open and close positions quickly, whether due to liquidity constraints or a desire to free up capital for new investments. In some cases, this can provide opportunities to offload more heavily stressed loans. JPMorgan recently tried to act as a broker for trading the debt of Pluralsight Inc., a troubled human resource development company, Bloomberg reported.
“Private loans have expanded, they’ve gotten so big that they’re competing with the broad-based syndicated market. You’ll see trading there and people looking for liquidity and risk mitigation,” says Chris Santana, co-founder of Monarch Alternative Capital, a credit investment firm focused on secondary debt purchases.
In an emailed response to questions, a Golub representative said the firm offers numerous financing opportunities to private equity sponsors, “including providing liquidity, primarily through trading in new issues, to those who find this differentiated offering valuable.” Golub has been trading private loans for over a decade, the representative said.
While many view secondary trading as a natural evolution of private lending, similar to the growth of the leveraged loan market over the past decades, not everyone is convinced.
Some argue that this undermines the value of direct lending, including the convenience of dealing with only a handful of lenders, the ability to keep loan details secret, and the price stability that comes with the lack of trading.
“Borrowers don’t want that because most private borrowers expect to know and have a say in who holds the loan,” says Joseph Weissglass, managing director of Configure Partners, a firm that helps corporate borrowers obtain financing. “Lenders who plan to sell part of their position are generally not thrilled at the idea of losing control of the sale because they want to know who will stay in the loan with them.”
A spokesman for Blue Owl Capital Inc., one of the industry’s largest lenders with more than $192 billion in assets under management, told Bloomberg that the company has no plans to set up a private lending trading division.
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In addition to trading, Golub also syndicates a portion of the loans it originates, allowing the company to reduce its exposure to certain loans.
Golub led a private debt facility valued at about $1 billion last month to support TA Associates’ acquisition of Momentive Software, which was subsequently sold to other investors.
Other firms, including Antares Capital, would trade private loans on an ad hoc basis, people familiar with the matter said.
A spokesman for Antares said the company has been operating as a direct credit trading agent for more than two decades.
Emergency sales
According to Andrew Milgram, chief investment officer at Marblegate Asset Management, the ability to buy or sell direct loans is particularly attractive to investors dealing with distressed borrowers.
The number of loan defaults, i.e. loans that expose lenders to the risk of losses, remains high as companies struggle with rising interest rates.
“I have received a number of calls from private lenders who want to exit heavily distressed loans and are looking to us to take their position,” Milgram said.
In addition, the emergence of controversial financings, which have proliferated in the leveraged loan market in recent years, could lead to investor withdrawal, according to Monarch’s Santana. Earlier this year, Pluralsight’s private equity owners pulled assets from their direct lenders to raise fresh capital.
“All the cash flow that goes into paying interest, the risk of transactions related to liability management and weaker operating performance are a cocktail that makes you want to sell,” Santana said, referring to private credit in general.
Offers
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KKR & Co. is in the early stages of plans to finance the acquisition of PR firm FGS Global with about $500 million in debt from private lenders
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KKR will use the private debt market to finance the acquisition of Finnish software company Accountor
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Partners Group is considering a sale of Confluent Health and is looking for private credit investors for debt financing
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Troubled Chinese property developer Logan Group Co. secured a $1 billion private loan to refinance its business, increasing the chances that the restructuring will move forward.
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Bohai Leasing Co. signed a $1 billion private loan agreement with RRJ Capital as part of the group’s efforts to refinance about $2 billion of debt due in September.
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A group led by Silver Point Capital provided an $862 million loan to partially support Sweet Oak’s acquisition of Whole Earth Brands Inc.
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Greg Coffey’s Kirkoswald Asset Management enters the booming private lending industry and issues its first senior secured loan to Turkish textile exporter Altinyildiz
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Sixth Street provides Arrowhead Pharmaceuticals Inc. with a seven-year, $500 million credit facility to finance the development of new drugs.
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Private lenders such as Blackstone Inc. and Goldman Sachs Asset Management are part of a consortium providing more than 1.2 billion euros in private loans to finance the acquisition of French software maker Orisha.
Fundraising
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Guardian Life Insurance has increased its stake in HPS Investment Partners and plans to transfer around $30 billion to the private lending company to
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Blue Owl Capital Inc. is selling part of one of its funds that buys shares in private equity firms to another investment vehicle it controls, part of an effort to return investors their money more quickly.
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SulAmerica Investimentos, the asset management arm of one of Brazil’s largest insurance companies, is planning its first private debt fund focused on project finance
Job change
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Dwight Scott, who helped build Blackstone Inc.’s Antares Capital lending business into a $330 billion giant, is retiring from the company
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Reena Gogna joined Paul Hastings in London as Global Finance Partner
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(Updated with additional comment from a Golub representative in the fifth paragraph.)
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