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ANNUAL REVIEW 2015

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 PRIVATE DEBT INVESTOR | ANNUAL REVIEW

EDITORIAL COMMENT
ISSN 2051-8439

MARCH 2016
Keep a weather eye open
Editor, Private Debt Investor
Rachel McGovern So far, the wider global market for alternative lenders such as us.
Tel: +44 20 7566 4281
rachel.m@peimedia.com volatility has been a boon for pri- Of course, falling asset prices
News Editor vate debt investors.The turbulence are always going to make more
Anastasia Donde
Tel: +1 212 633 1456
anastasia.d@peimedia.com
beating up other financial markets conservative bank real estate
Reporter
has thrown juicy opportunities into lenders nervous. And while
Christie Ou
Tel: +852 2153 3874
the laps of alternative lenders. Europe hasnt geared up for a
chrisite.o@peimedia.com
Looking further ahead, though, distressed investment cycle just
Advertising Manager
Beth Piercy with no visibility on precisely how yet, managers in the US and Asia
Tel: +44 20 7566 5464
beth.p@peimedia.com a downturn will pan out, it would are salivating over the anticipated
Production Editor
Mike Simlett
seem prudent for cashflow lenders dealflow.
Tel: +44 20 7566 5457
mike.s@peimedia.com
and anyone exposed to frothy valu- US distressed giant Oaktree
Head of Production
ations to batten down the hatches. hit and surpassed its $10 billion
Tian Mullarkey
Tel: +44 20 7566 5436 Private credit is having a moment with inves- target for Opportunities Fund X and Fund Xb
tian.m@peimedia.com
tors. From all over the world and across differ- before opting to keep the vehicles open because
Subscriptions
Ian Gallagher (Americas) +1 646 619 8131 ent types of institution, there are a plethora of a spike in investor appetite for the firms spe-
ian.g@peimedia.com
Daniele Lorusso (EMEA) +44 (0)20 7566 5432 of factors pushing them towards illiquid credit ciality distressed debt.
daniele.l@peimedia.com
Brix Sumagaysay (Asia-Pacific) +852 2153 3848
investment. And with such a positive fundraising While in Asia, the trend is the same, says
brix.s@peimedia.com
For subscription information visit
environment, theres the potential that managers Joseph Chang, principal, private markets group
www.privatedebtinvestor.com will take all they can get rather than consid- at Mercer. In a slowing economy, as well as in
Group Managing Editor
Amanda Janis
ering what capital they can reasonably invest certain sectors like energy, there is no doubt
Tel: +44 207 566 4270
Amanda.j@peimedia.com into a defined and insulated strategy. As a still that there will be more distressed opportuni-
Editorial Director relatively nascent asset class caution is essential ties, he says.
Philip Borel
Tel: +44 207566 5434 for longevity. In China, non-performing loans (NPL) are
Philip.b@peimedia.com

Research and Analytics

Of course, caution shouldnt (and likely on the rise. Ratings agency Standard & Poors
Dan Gunner
Tel: +44 20 7566 5423
wont) prevent managers from making hay while estimated that Chinese banks NPL ratio stood
Dan.g@peimedia.com
the sun shines. at 2.2 percent as of end 2015, up from 1.7
Publishing Director
Paul McLean Golub Capitals David Golub says what percent a year earlier. The agency expects that
Tel: +44 20 7566 5456
paul.m@peimedia.com everyone has been thinking: When were in a ratio to reach 3 percent by the end of 2016.
Chief Executive market such as were in right now, filled with For the managers that dont have a distressed
Tim McLoughlin
tim.m@peimedia.com volatility and uncertainty, our ability to provide strategy, however, all this would suggest that its
Managing Director Americas
Colm Gilmore
certainty of execution and size becomes very time to take portfolio management and credit
colm.g@peimedia.com
valuable to our private equity clients. We think selection even more seriously than usual.
Managing Director Asia
Chris Petersen this is going to be a continuing story into 2016: Enjoy our review of a range of markets over
chris.p@peimedia.com
that were now winning deals that in the past the coming pages. For anyone too impatient to
NEW YORK
16 West 46th Street, 4th Floor might have gone to bigger competitors. wait for the awards results, skip straight to p. 27.
New York , NY 10036-4503
And its not just corporate lenders anticipat-
LONDON
140 London Wall, London, EC2Y 5DN ing a positive start to the year as equity markets
HONG KONG
14/F, Onfem Tower
continue to suffer a hiding.
29 Wyndham Street
Central, Hong Kong
Clark Coffee, head of Tyndaris Real Estate,
PEI Media Ltd 2016
which invests in mezzanine and preferred equity Rachel McGovern
No statement in this magazine is to be construed as a
recommendation to buy or sell securities. Neither this in Europe, says: We anticipate the recent vol- Editor
publication nor any part of it June be reproduced or
transmitted in any form or by any means, electronic or atility in commodities and equity markets to
WHAT DO YOU THINK?
mechanical, including photocopying, recording, or by any
information storage or retrieval system, without the prior
permission of the publisher. Whilst every effort has been reduce the risk appetite of traditional lenders
made to ensure its accuracy, the publisher and contributors
accept no responsibility for the accuracy of the content in and financial institutions in the first half of 2016. HAVE YOUR SAY
this magazine. Readers should also be aware that external
contributors June represent firms that June have an interest
in companies and/or their securities mentioned in their
This should create new pockets of opportunity rachel.m@peimedia.com
contributions herein.

An n ua l Rev i ew 2015 | Private Debt Investor 1

 PRIVATE DEBT INVESTOR | ANNUAL REVIEW

CONTENTS

COMMENT REVIEW OF 2015

1 Editors letter 4 Regional overview:
North America
12 A new securitisation Tumultuous markets capped
regime for Europe off a lucrative year for North
The new regime is a step in the Americas debt managers and
right direction, says Andreas Wlfl the turbulence is continuing
into 2016.
of Argentarius, but leaves many
questions unanswered.
9 Safe as houses
The growth of real estate debt
52 The last word funds appeared to be slowing
The most quotable moments from
4 Regional overview: North America in 2015, but then the macro-
the year in private debt. economic headwinds began
blowing in their direction.

14 Regional overview:
PDI ANNUAL Europe
AWARDS 2015 European private debt funds did
more (and bigger) deals in 2015
30 In the fast lane than in any previous year.
The competition stiffened this
year as the hurdle for winning 19 Turning the world
rose once again. upside down
Unitranche loans are evolving with
32 Global newcomer the wider private debt market as
of the year they make their presence felt on
both sides of the Atlantic.
32 The Americas 14 Regional overview: Europe
22 Regional overview:
38 Europe Asia-Pacific
Private debt funds saw growing
45 Asia-Pacific numbers of distressed debt
opportunities in 2015 and could
48 The winners list play a bigger role in clearing
non-performing loans in the
year ahead.

DATA
49 Debt fundraising 2015
PDI Research & Analytics analyse
the year that was in fundraising
statistics.

27 PDI Annual Awards 2015

2 Private Debt Investor | Annua l Re view 2015

arbourpartners.com +44 207 947 5404
 ANNUAL REVIEW
NORTH AMERICA
Sailing into
stormy waters
Tumultuous markets capped off an otherwise lucrative year for North Americas debt
managers and the headwinds are continuing into 2016, writes Anastasia Donde
N
orth Americas biggest private
debt players enjoyed record fun-
draising and deployment in 2015,
but the second half of the year provided a
warning of a storm brewing on the horizon.
Equity market volatility, a high-yield
tumble and energy losses all took their
toll, leaving few places to hide, especially for
publicly traded asset managers and business
development companies (BDCs) forced to
mark down their portfolios.
Of course, many of these players say the
marks do not reflect the inherent credit
quality of their book and the deals will come
good. But these headwinds create a trying
environment for lenders heading into 2016.
4 Private Debt Investor | Annua l Re view 2015
While distressed players are more
optimistic about investment options,
other traditional lenders are noticeably
nervous.
FUNDRAISING
The money raised for private debt funds
in 2015 eclipsed the 2014 total by 21 per-
cent: reaching $102.75 billion, up from
last years $84.9 billion, according to PDI
Research & Analytics. This represented
139 funds that held a final close in 2015,
compared with 126 in 2014.
Some would argue that there are too
many funds being raised, though Michael
Ewald, head of mid-market lending at
Bain Capitals Sankaty Advisors, would
not necessarily agree. He points to banks
continuing to reduce dealmaking as lever-
aged lending guidelines become stricter
and clearer.
The banks ignored leveraged lend-
ing guidelines for some time initially,
says Ewald, though banks started paying
more attention when Credit Suisse got in
trouble with the Fed in 2014 and other
regulatory bodies clarified guidelines.
In addition, most BDCs were trading
below book value in 2015, which limited
them to recycling their existing portfolios.
The BDCs couldnt issue new stock, so
they were a lot less active.The new senior
 ANNUAL REVIEW

Crescent are all now raising large successor

mezzanine funds.

M&A
Last year saw a lot of M&A activity among
lenders and alternative asset management
firms, with some of these deals reaching
completion as others fell apart.
General Electric, which set out to sell
most of its GE Capital units, had divested
$157 billion worth of assets by January.
Antares Capital, which many describe as
the crown jewel of sponsor finance in
the US, was sold to the Canada Pension THE BDCS COULDNT
Plan Investment Board (CPPIB). Industry ISSUE NEW STOCK, SO THEY
experts believe this transaction underscores WERE A LOT LESS ACTIVE.
how valuable non-bank lending has become. ALL THESE SENIOR DIRECT
In addition to the GE Capital sales, there LENDING FUNDS BEING
were several other M&A deals that involved RAISED COUNTERACTED
purchases of debt players, such as GAM and THAT A BIT
Renshaw Bay, Fortress and Mount Kellett, Michael Ewald
Crown Copyright 2013 Photographer: Royal Navy

PennantPark and MCG, Conning and Octa-

gon, as well as Sankaty buying Regiment
Capitals CLO book.
At the same time, there were several
large M&A transactions that fell through
towards the end of the year, including Ares
and Kayne Anderson, Apollo Global Man-
agement and AR Global, and Benefit Street
direct lending funds that were raised Partners attempted takeover of TICC Capi-
counteracted that a bit, says Ewald. tal Corps investment advisor. With more
In many cases you saw second lien carnage anticipated this year, more deals
coming back into the middle-market and
subordinated debt masquerading as second CAPITAL RAISED BY NORTH AMERICA-FOCUSED FUNDS (2008-15)
lien. It undercut some folks that do junior 60 80
73
lending like ourselves and you saw second
63 70
lien pricing starting to widen out, which 50
60
62
54 58
ultimately led to a lot of opportunity for 60
Number of funds closed
Capital raised ($bn)

40 47
sub debt lenders. 46 50

Unitranche transactions also continued 30 40

to be popular. Most of Golub Capitals $8.4
30
billion in origination volume in 2015 went 20

into the instrument. 20

10
GSO Capital, winner of this years junior 10
49.01 21.47 20.69 20.06 20.89 29.58 29.35 30.22
lender of the year category, also saw record 0 0
activity in subordinated debt, deploying 2008 2009 2010 2011 2012 2013 2014 2015

$1.2 billion in 2015. GSO, Highbridge and Source: PDI Research & Analytics

An n ua l Rev i ew 2015 | Private Debt Investor 5

 ANNUAL REVIEW

NORTH AMERICA

like these are expected to be tabled with an
equal expectation that some will fall apart.
In December, many alternative lenders
told PDI that they were getting numerous
calls from private equity sponsors seeking
to refinance deals that the original bank
lenders were stalling on.
David Golub estimated that there are
about $10 billion-$15 billion worth of these
hung deals in the market waiting to be refi-
nanced and that the banks will either have
to sell the paper at a loss or hold in the hope
that market conditions improve.
The dislocation is creating opportunities
for alternative lenders. Both Golub and Ares
Capital led their largest syndicated deals
in 2015. Golub worked on a refinancing of
Behrman Groups Data Device Corporation,
while Ares led Bregal Partners dividend
recap of American Seafoods. Both lenders
said these deals set a new high-water mark
and proved alternative lenders ability to
compete with banks on large syndicated
deals. Going into 2016, both managers say
they see more such opportunities.
When were in a market such as were
in right now, filled with volatility and uncer-
tainty, our ability to provide certainty of
execution and size becomes very valuable
to our private equity clients, Golub said.
We think this is going to be a continu-
ing story into 2016: that were now winning
deals that in the past might have gone to
bigger competitors.
With market turmoil continuing in the
opening six weeks of 2016, the question
on everyones mind is whether the US is
heading into a recession.
Speaking last month, Oaktree Capital
WHEN WERE IN A
Managements chairman Howard Marks
MARKET SUCH AS WERE
said he did not think 2016 will be a reces-
sion year yet, though he sees some of the
IN RIGHT NOW, FILLED
market headwinds creating more opportuni-
WITH VOLATILITY AND
ties for a distressed investor like himself. UNCERTAINTY, OUR ABILITY
[Last year] was generally challenging TO PROVIDE CERTAINTY
for the credit markets.The carnage in com- OF EXECUTION AND SIZE
modities, coupled with macroeconomic BECOMES VERY VALUABLE
concerns about possible slowing growth TO OUR PRIVATE EQUITY
worldwide, particularly in China, led to CLIENTS
broader market volatility, which emerged at David Golub

COUNTDOWN TO COMPLIANCE
For CLO managers, the clock is ticking to comply with risk retention
rules that come into force in December. Many spent 2015 either
coming into compliance or thinking about how to get there.
CLO issuance fell to $97.4 billion in 2015 from $124.1 billion a
year earlier, though many players point out that this still puts 2015
in the top three in terms of annual CLO issuance.
European issuance was also high, with US managers like GSO
and Oak Hill doing more deals in Europe. UK-domiciled 3i Debt
Management got three US and three European deals done in 2015.
In the US, we started to invest sufficient capital in our deals
to show that we have the resources to comply with risk retention
requirements, says John Fraser, the New York-based managing
partner at 3i Debt Management US. The firm has been in
compliance with European risk retention rules since 2013.
3i has been working on buying equity to meet the 5 percent of
par value of the CLOs capital structure, Fraser says. He and other
large CLO players think issuance will be down this year. We will
participate in the CLO market to the extent that it makes sense for
our capital and our clients capital, but we wont try to force CLO
issuance at pricing at levels that dont make sense, Fraser says.
CIFC issued five CLOs in 2015, with none being risk retention
compliant, although co-president Oliver Wriedt tells PDI that is
a testament to the markets faith in the firms platform. CIFC has
lined up credit facilities with banks in recent years and is now
working with JPMorgan to get a fresh equity infusion or backer
for the company. Wriedt is confident in the firms ability to come
into compliance soon. The firm is also raising money for a CLO
secondary strategy, as Wriedt believes the market environment will
bring more of these opportunities to bear.
Rick Jones, co-chair of Decherts real estate and finance practice,
says he is working with many CLO managers on how to get to
grips with risk retention compliance. Several managers are said
to be looking to set up capital manager vehicles or majority-
owned affiliate (MOA) structures to reach compliance. In February
it emerged that Blackstone/GSO had set up a new US-focused
MOA when it invited public shareholders in its listed European risk
retention vehicle to expand their mandate to invest into the US
vehicle. n

6 Private Debt Investor | Annua l Re view 2015

 GSO Capital Partners
is honored to receive the
2015 Private Debt Investor
awards for:

Junior Lender of the Year, Americas

CLO Manager of the Year, Europe

New York Dublin Houston London

www.blackstone.com
 ANNUAL REVIEW
NORTH AMERICA
the end of the second quarter and persisted
through year-end, Marks said.
High-yield bonds tumbled toward the
end of the year, losing about 8 points in
the second half, and making 2015 the third
worst year in Oaktrees 30-year history,
Marks added. Continued energy concerns
also took their toll on managers, with Black-
stone reporting mark-to-market losses on
its energy holdings.
A lot of this turmoil is prompting firms
to gear up distressed funds. Several of the
big distressed players, including Oaktree,
The Carlyle Group, Oak Hill Advisors and
Sankaty, have been in the market with large
funds for some time.
BDCs: A YEAR OF RECKONING
THIS WILL BE A YEAR
OF THE HAVES AND THE
HAVE NOTS. AND THE
HAVES ARE ALL THOSE
THAT HAVE MULTIPLE
POOLS OF CAPITAL
Gary Creem
8 Private Debt Investor | Annua l Re view 2015
Centerbridge Partners is also now rais-
ing a $6 billion Special Credit Fund III, a
distressed series, while Oaktree is keep-
ing its $10.5 billion Fund X open to new
commitments. At the same time, the debt
players admit that its difficult to time the
inflection point correctly.
Asked on Oaktrees earnings call when
recession would hit, Marks joked: We fired
our economist. Actually, thats not true; we
never had one.
On a more serious note, he added: I just
dont think that were in for a recession this
year. My feeling is that weve been limping
along for several years now with an anemic
recovery and it seems to be losing energy. n
Last year, several BDC actors who have let
down shareholders were finally forced to face
the music.
Fifth Street Asset Managements two
BDCs and their executives were slapped with
shareholder criticism and lawsuits alleging
that the firm mismanaged these vehicles
to enrich management at the expense of
shareholders. The firm is now exploring selling
the investment advisor, as PDI has reported.
Prospect Capital Corporation, another
fledgling BDC that has been planning to spin
off some of the assets into a CLO vehicle, is
now being investigated for its CLO marks by
the Securities and Exchange Commission
(SEC), according to a recent report from Asset-
Backed Alert.
Most of the headlines involving BDCs in
2015 were around TICC Capital Corp, an
underperformer whose manager was set
to be sold to Benefit Street Partners (BSP).
When competing bids came in from TPG
Specialty Lending (TSLX) and Highland Capital
Management, the two firms argued that
the BSP deal was a rigged election and the
transaction ultimately did not pass the hurdle
for shareholder approval in December.
And the saga isnt over. TSLX and Highland
are still demanding new board members and
I DONT THINK THAT WERE
IN FOR A RECESSION THIS
YEAR. MY FEELING IS THAT
WEVE BEEN LIMPING
ALONG FOR SEVERAL
YEARS NOW WITH AN
ANEMIC RECOVERY AND
IT SEEMS TO BE LOSING
ENERGY
Howard Marks
strategic changes at TICC. American Capital,
a Maryland BDC also accused of destroying
shareholder value by an activist investor, is
currently also exploring sale options.
While all this scrutiny is undoubtedly
painful for the sector, analysts and experts
believe it will ultimately weed out the bad
apples and future M&A will ultimately be a
boost to the industry. For now, most BDCs
continue to trade at steep discounts to book
value.
The convulsions and sliding share prices
have not discouraged firms from setting up
private BDCs, the most common way to enter
the BDC market.
Sankaty is one of many setting up such a
private BDC. It collected $700 million for the
private closed-end fund by May 2015 and
filed preliminary documents with the SEC for a
BDC, planning to collect more capital via that
structure.
With many firms setting up BDCs and new
debt shops launching with several types of
vehicles, product diversification is emerging
as a key trend. This will be a year of the
haves and the have nots, says Gary Creem,
a partner in the multi-tranche finance group
at Proskauer. And the haves are all those that
have multiple pools of capital. n

REAL ESTATE DEBT FUNDS
Safe as houses
The growth of real estate debt funds appeared to be slowing in 2015, but then the
macro-economic headwinds began blowing in their direction, writes Bridget OConnell
F
rom the United States to Europe
and onto Asia the growth of real
estate debt funds has seemed inex-
orable over the past decade and showed
few signs of slowing in 2015.
Of 150 new lenders to have entered the
real estate finance market over the past
three years, 60 percent were non-bank
namely debt, private equity and special
opportunity funds according to Savills
Property Financing 2015 report.
This growth is reflected in market
share. In Britain, De Montfort Universi-
tys UK Commercial Property Lending Market
report found that the banks slice of the
overall market has fallen from a peak of 72
percent to 49 percent of a 165.2 billion
($239 billion; 213 billion) pie at the end
of 2014. Non-bank lenders have expanded
ANNUAL REVIEW
to 6.5 percent over the same period. In
terms of origination, which surged 51 per-
cent to 45.5 billion in 2014, UK banks
and building societies still provide the
biggest chunk (39 percent), but insurers
and other non-bank lenders account for
a healthy 25 percent.
In the face of aggressive competition
this advance was felt to be slowing in early
2015, but received a helping hand in the
second half of the year when macro head-
winds started blowing.
IF YOU ARE PLAYING IN Chinas equity market volatility, fears
THE MARKET TODAY YOU over emerging economies growth and
HAVE TO BE PREPARED TO falling commodity prices, were unevenly
BE FLEXIBLE IN TERMS OF felt within real estate financing markets,
HOW YOU LEND BECAUSE but weighed more heavily on traditional
THE MARKET IS SHIFTING lenders.
Nassar Hussain Many of these institutions had hit their
An n ua l Rev i ew 2015 | Private Debt Investor 9
 ANNUAL REVIEW
REAL ESTATE DEBT FUNDS
WE ANTICIPATE THE
RECENT VOLATILITY IN
COMMODITIES AND
EQUITY MARKETS
TO REDUCE THE RISK
APPETITE OF TRADITIONAL
LENDERS AND FINANCIAL
INSTITUTIONS IN THE
FIRST HALF OF 2016. THIS
SHOULD CREATE NEW
POCKETS OF OPPORTUNITY
FOR ALTERNATIVE LENDERS
SUCH AS US
Clark Coffee
10 Private Debt Investor | Annua l Re view 2015
full-year lending targets by the third
quarter so went risk off in the final
quarter. This also resulted in the pres-
sure being taken off contracting margins,
albeit temporarily.
According to Cushman & Wakefields
European Lending Trends report last month,
average senior loan margins last year were
138bps in Paris, 139bps in Frankfurt
where LTVs are typically higher than the
UK and 157bps in London, but were
conservatively estimated to have moved
out 25bps in the UK in Q4.
Those lending mezzanine said the
shift was more dramatic, with loans
written for 7 percent to 9 percent in
the summer moving out by 100bps by
year-end.
Clark Coffee, head of Tyndaris Real
Estate, which invests in mezzanine and
preferred equity in Europe, believes this
could continue. We anticipate the recent
volatility in commodities and equity mar-
kets to reduce the risk appetite of tradi-
tional lenders and financial institutions in
the first half of 2016. This should create
new pockets of opportunity for alterna-
tive lenders such as us, he says.
It is this higher-yielding debt space
where the majority of private debt man-
agers are targeting the best risk-adjusted
returns.
Initially, due to the disruption and illi-
quidity in European markets, mezzanine
funds were able to achieve their target
returns at a very attractive risk profile.
However, as liquidity returned, manag-
ers have had to become more creative in
terms of how they deliver their returns.
Some have chosen to maintain their
return profiles by accepting increased
risk, which can come in the form of
higher LTV points, more transitional
collateral and/or by way of balance sheet
tools, such as senior syndication and lev-
erage. Other managers have worked to
reduce investors return expectations
and hold their risk levels neutral. This
is seen as a natural progression of the
mezzanine market from generalist to
specialised managers, some targeting
high-risk segments and others focusing
on lower-risk areas of the opportunity set.
This evolution mirrors that of the
private debt universe in the US, which
emerged on the back of the savings and
loan crisis of the 1990s.
Debt strategy specialisation, such as
focusing on the private rented sector or
smaller loan sizes for example, could also
emerge this year, according to Nassar
Hussain, founder of debt restructuring
specialist and mezzanine lender, Brook-
land Partners.
In fact, it is already happening. Last
month, M&G Investments said it was
considering raising a development
finance fund after investing 2.2 billion
in European CRE senior and junior debt
in 2015.
If you are playing in the market today
you have to be prepared to be flexible
in terms of how you lend because the
market is shifting, Hussain says.
And investors are willing to continue
to support managers demanding a wider
remit judging by the capital raises in
2015 and those expected this year.
GES DISAPPEARANCE
Despite rapid progress, the European
market is still some way off the more bal-
anced landscape prevalent in the US, where
just under half of all real estate finance
in a $2.9 trillion market is provided by
alternative sources.
And the US model is far more firmly
entrenched: the trend for the last 50 years
shows that the banking sector accounts
for just over half of all real estate lend-
ing. CRE debt funds account for approxi-
mately 30 percent of this, cementing their
position in the wake of the financial crisis
when blue-chip players such as Blackstone

and Starwood emerged as market leaders.
However, this old guard was shaken-up in
April when General Electric announced
it would exit the bulk of its lending busi-
ness, GE Capital, including a $26.5 bil-
lion sale of most of its real estate assets
and loans.
Ryan Krauch, a principal at Mesa West
Capital, a privately held portfolio lender
with a capital base of more than $3.5 bil-
lion, calls GEs overnight disappearance Edwin Wong
a game-changer.
It is one of the most significant things
to happen in the real estate lending busi-
ness since the global financial crisis and
created a lot of opportunity for people in
our business, he says.
GEs decision has not dampened enthu-
siasm for the asset class with investors
turning to the sector globally in droves in
the scramble for yield.
Krauch explains the US market ration-
ale: Investors need current income in a
low interest rate environment, which is
hard to find through traditional fixed-
income investments. And they need down-
side protection in a late-cycle investment
market, and that is hard to find in a low-cap
rate environment. This creates a natural
demand for real estate debt which has the
ability to solve both problems.
It is not only investors desperate for
yield. Lenders have moved into new asset
types, such as secondary and tertiary mar-
kets, while in Europe they have bifurcated
into specialist and generalist managers.
However, the underserved middle
market, that is assets under $50 million,
could be a big growth area, according to
Robert Brown, a managing director at JCR
Capital which operates in this space.
He reasons that volatility in the capital
markets as seen in the US and Europe in
the second half of 2015 can create a sweet-
spot for smaller-ticket lenders.
If you look at the upcoming wave of
CMBS maturities some $114.6 billion
ANNUAL REVIEW
around $64 billion last year about level
IN INDIA WE CONTINUE with 2014s total in dollar terms, but an
TO SEE A PROLONGED overall increase when measured in local
SLOWDOWN IN THE REAL currencies, according to JLL.
ESTATE SECTOR CREATING Banks reign supreme and competition
FUNDING NEEDS FOR between them is fierce. PwCs Emerging
CORPORATES, SO WE WILL Trends in Real Estate Asia Pacific 2016 report
LEND FOR GROWTH BUT said that together with proceeds from
ALSO PROVIDE RESCUE pre-sales, bank debt remains the dominant
FINANCING source of financing for Asian real estate.
However, with additional expenses
piled on banks by Basel III capital require-
this year a lot of the big institutional ments, insurance companies in particu-
deals have been sold, refinanced or restruc- lar have started entering Asia-Pacific with
tured. But if you are a small owner-opera- MetLife, Prudential and Manulife among
tor who borrowed CMBS 10 years ago you others having recently deployed capital, or
still have to repay your loan and there is seeking to do so.
not enough capital focused on that space. There are also a dozen or so alterna-
If you look at the amount of transactions tive asset management firms focused on
in that middle space it is exponential in credit and special situations investing in
terms of number of deals. Asia, carving out a niche in real estate.
One of these is SSG Capital Manage-
ASIA BANKS REIGN ment led by managing partner and chief
Compared with the US, the real estate investment officer Edwin Wong, who
finance shadow banking industry in Asia points to structural gaps in emerging
is in its infancy, with Japan and Australia markets such as India and China.
the most established markets. In India one of the emerging markets
Real estate-related debt investments hardest hit by a stricter regulatory regime
in the region, assuming a rough guide lending growth fell from 33 percent in
of about 50 percent LTV ratio, totalled 2005-08 to 10 percent in 2011-14.
In India we continue to see a prolonged
PRIVATE DEBT REAL ESTATE slowdown in the real estate sector creating
FUNDRAISING BY REGION funding needs for corporates, so we will
IN 2015
lend for growth but also provide rescue
10 financing, he says.
9 Banks will also not lend against land
8 8.84 for development in the emerging markets,
7 7.78 so private debt is benefitting from that.
Total capital raised ($bn)
6 In China, developers have been reliant
5 on the countrys $18 billion bond market
4 to raise finance as banks became more
3
3.28
conservative in recent years, but with the
2 booming bond market falling victim to
1 equity market turmoil there is an oppor-
0.19
0 tunity not without risk Wong acknowl-
Western
Europe
Global North
America
Asia-Pacific edges for debt funds to fill the breach
Source: PDI Research & Analytics here too. n
An n ua l Rev i ew 2015 | Private Debt Investor 11
 EXPERT COMMENTARY
ARGENTARIUS
A new securitisation
regime for Europe
The new regime is a step in the right direction, but leaves many unanswered questions as
the reform process continues, writes Andreas Wlfl
T
he financial and regulatory frame-
work of securitisation of credit
risk is going through profound
transformation. These changes in regu-
lations are still in fieri, ongoing.
The European Commission recently
published a proposal to harmonise the
overall securitisation environment and to
set out a comprehensive and standardised
framework for both securitising parties
and investors. This regulatory effort is one
of the most substantial and significant
reforms of securitisation regulations,
and essentially covers the subject matter
of the securitisation of credit risk not
originated by the issuer of the securitised
instruments. Other fields of interest such
Andreas Wlfl
as the securitisation of market risk, of
insurance risk or derivatives is not object
of this regulation.
The EU proposals recognise the need
for reform and homogenisation of the
existing rules and practices for due dili-
gence, disclosure and risk retention, to
establish coherence and consistency. At
the same time, the proposals aim to create
a precise framework for simple, trans-
parent and standardised securitisations,
the so-called STS criteria, which aim to
benefit both investors and originators.
Although this regulation is still at
the proposal stage, its implications for
securitisation include potentially intro-
ducing key obligations for originators
12 Private Debt Investor | A n n ua l Re v i e w 2 01 5 
and regulated institutional investors. Its
therefore essential that asset managers
are aware of these changes and their
impact.
Parallel to this, the European Commis-
sion has also proposed a comprehensive
capital requirements regulation (also
known as the CRR amendment) that
paves the way for a more prudential and
risk-oriented approach toward secu-
ritisations, with a likely rationalisation
of capital requirements for securitised
exposures. The new CRR rules are still
being debated, and further disclosure by
the policymaker is thus needed in order
to draw additional conclusions and avoid
ambiguous interpretations.
Securitisation rules and practices
under the Alternative Investment Fund
Managers Regulation (AIFMR) and the
CRR will be replaced by the content and
provisions of the securitisation regula-
tory framework as presented in the EU
draft. This is particularly important from
a due diligence perspective, since inves-
tors must get up to speed on the level of
internal reporting, risk characteristics
and structural traits of the securitisation.
As evidenced by recent studies in this
area, substantial discrepancies still persist
between national competent authorities
and EU regulation and practices. Article
16 of the current EU proposal seeks to fill
the regulatory vacuum and the differences
S p o n so red by AR GE NTAR IU S

in the competences between regulators by
requiring national competent authorities
(NCAs) to analyse and review securiti-
sation arrangements and verify whether
they comply with the STS criteria.
More detailed guidance by the Euro-
pean policymaker is still needed in this
area, although it is widely believed that
the joint committee (comprised of the
European Banking Authority, European
Securities and Markets Authority and
the European Insurance and Occupa-
tional Pensions Authority) will design and
implement binding standards to ensure
the trust of investors and a sufficient level
of legal certainty and consistency in their
interpretation by different regulators.
A consistent degree of novelty to cur-
rent practices is also introduced with
respect to risk retention. Under article
four of the EU proposal: any one of the
sponsor, originator and lender parties are
required to retain a minimum of 5 per-
cent economic interest in the issuance.
In addition to this, both originators and
investors are required to ensure legal
compliance, meaning that that burden
will no longer be exclusively carried by
investors.
In this sense the establishment of a
unique, organic, regulatory environment
for securitisation, as presented in the
EU regulation, is part of a comprehen-
sive effort to enact a set of regulatory
technical standards that facilitate compli-
ance with these rules as well as establish a
common ground for securitisation regu-
lation. The moves allow for the creation
of a framework more compatible with
current US standards, thereby reducing
conflicts among national regulations and
facilitating interdependence between the
two securitisation markets.
Spons ored by A R G E N TA R IUS 
Grandfathering provisions are also
expected to apply to existing securitisa-
tions, so that EU risk retention require-
ments will not impact older deals.
Parallel to this, under article five of
the EU proposed regulation, which is
designed to build article 8b of the CRA
regulation, securitising parties will be
required to provide investors and regu-
lators with more detailed information
such as key transaction documents and
underlying asset performance, together
with information on potentially signifi-
cant and price-sensitive events.
Although within the EU guidance
there is no explicit mention of the obliga-
tion to render information publicly avail-
able on all transactions (and information
on private deals may still remain private),
the forthcoming regulatory technical
standards will require information to be
disclosed to both investors in the securiti-
sation and to the competent authorities.
A major innovation is new transpar-
ency criteria that hold originators, spon-
sors and special purpose vehicles (SPVs)
jointly responsible for compliance with
article five.
In addition to this, the policymaker is
setting stricter and more defined limits
for the eligibility of originators, which are
now required to hold economic capital
against the securitised exposures.
It is still unclear whether this regula-
tion will include minimum holding peri-
ods or real substance tests for securitised
assets, although it is widely believed that
the new EU guidance will make it clear
that originators should not be constructed
solely to act as originators for securitisa-
tion transactions.
The introduction of a more uniform
and homogeneous regulatory environment
An n ua l Rev i ew 2 0 1 5 | Private Debt Investor 13
EXPERT COMMENTARY
for securitisation will facilitate the adop-
tion of structured alternative investments
on a large scale, argue many experts.
The application of the STS criteria,
together with a broader adoption of
a common regulatory framework for
securitisations in the EU landscape, are
intended to benefit not only investors, but
also originators and sponsors.
So although uncertainty still char-
acterises the legislative process, better
regulation will facilitate the growth of
structured alternative investments.
The regulation of securitisations has
been recently prioritised by EU policy
makers, and the approval of these norms
is expected to take place shortly. n
ABOUT
ARGENTARIUS
Andreas Wlfl is the former head of Austrian
indices at the Vienna Stock Exchange and
chairman of Argentarius ETI Management
Ltd. After implementing index projects at the
Vienna Stock Exchange he began to see how
securitisation could be used to help solve
structural challenges in financial markets. He
set up the Argentarius Group by securitising
an offshore hedge fund into a transferable
security in 2004.
The Argentarius securitisation platform is used
by hedge funds, asset managers, UCITS funds,
insurance companies and custodian banks to
structure investment products and repackage
underlying alternative investments. Argentarius
has a network of securitisation cell companies
registered in Malta that issue exchange traded
instruments which enable investors to gain
access to the performance and risk of the
underlying alternative investment assets.
 ANNUAL REVIEW
EUROPE
Making hay
It was a record year for European private debt funds with more (and bigger) deals than
ever before, writes Rachel McGovern
W
hile its possible to argue
how wise it is for managers
to openly tout that they can
compete with the syndicated loan market,
the fact is that even three years ago an
alternative lender putting up 300 mil-
lion by itself would not have been con-
sidered possible. This year, though, Ares
did so when it backed the acquisition of
international tax refund group Fintrax by
listed French sponsor Eurazeo.
Even a club of four doing a $400 mil-
lion deal would have stretched imagina-
tions, and yet in September ICG teamed
up with Hayfin before Highbridge and
Sankaty also joined the financing for
Chiltern, the clinical research company..
The deal was also notable for the fact that
Chiltern is controlled by a trust, not a
14 Private Debt Investor | Annua l Re view 2015
private equity sponsor. The shift is sig-
nificant because it marks a change in the
attitude of both borrowers and alterna-
tive lenders.
The debt funds now believe that they
can source and execute these deals and
have the capital to do so. Ares European
private debt co-head Blair Jacobson says
he has no doubt similar large deals will
come their way in 2016.
On the borrower side, it now speaks of
a conviction that alternative lenders will
behave like bank lenders rather than the
private equity funds or distressed debt
managers that many of them are owned
by or linked to.
So while not all investors are keen for
their managers to focus on replacing banks
in larger deals, the shift was a significant
one for private lenders in Europe.
A criticism often levelled at non-bank
lenders is that they are doing much riskier
deals than their banking counterparts.Thats
not the case, however, says Investecs head of
debt advisory, Jason Green. Debt funds are
seeking good quality credits with a diligence
process that is in some cases even more
intensive than that of a bank.
They seek a premium by offering speed,
flexibility and juicier leverage. Green, how-
ever, is sceptical that all debt managers are
created equal in terms of offering some-
thing that different to a bank deal.
A fund will be a little more crea-
tive than a bank, but I think thats often
overplayed. There are particularly in
real estate funds that are pricing much
wider than commercial banks and have
 ANNUAL REVIEW

BIGGER FISH
The proponents of larger deals argue that
there are far fewer players that can finance
the upper end of the mid-market either
alone or as part of a small club.
Its true that there are plenty of alternative
corporate lenders focused on mid-market
lending. Most are restricted from larger
deals by the size of their fund with only a
handful of lenders able to boost funds of
more than 1.5 billion-2 billion.
With a concentration of deal-hungry
alternative lenders in the 30 million-70
million deal bracket, lending conditions for
borrowers with lower enterprise values (and
therefore higher overall risk), are getting
frothy, say the managers writing the biggest
tickets.
But is competing with the syndicated
bank loan market really any less of a
compromise?
Banks have a much lower cost of funds than
private debt funds at least for the moment.
Leveraged loans in the upper mid-market
typically carry margins of 350bps-500bps and
its difficult for a manager to manufacture a 9
percent net IRR out of that. n

key difference is their willingness to put

as boilerplate an approach. As an advisor,
I dont find that a particularly impressive
pitch to the market, says Green.
There were 92 unitranche financings
executed in Europe last year, according
to the Altium Mid-Cap Monitor.Thats up
almost 30 percent from the 62 such deals
recorded in 2014.
And while private lenders do not limit
themselves to extending unitranche loans,
the instrument is one of their major selling
points and can be viewed as a fair proxy for
their activity in mid-market lending.
Many debt managers claim that once a
sponsor uses a debt fund or unitranche, they
rarely go back to traditional bank structures,
finding them restrictive in comparison.
Others, mainly debt advisors, point out that
unitranche structures are not nearly as good
value as debt managers claim.
The funds are looking for high quality
deals, just the same as everyone else. A
a little bit of extra leverage into the deal,
maybe half to one turn. And so, if leverage
is king in a deal, then that might be worth
paying for, says Green.
But that extra leverage comes at a very
high cost, Green notes, a cost that often
isnt worth it. If a fund is seeking 10 per-
cent to finance a transaction with 3.5x
leverage, then the bank financing with a
400bps margin and 2.5x leverage often
looks like the better option.
Several other fellow debt advisors
agree with Greens assessment, includ-
ing Swagata Ganguly, a senior managing
director and head of European debt advi- M&A WILL SLOW DOWN,
sory at Evercore. The high pricing often ASSET PRICES WILL COME
demanded by alternative lenders is a big OFF A BIT, [LOAN] PRICING
stumbling block in their march towards WILL RISE AND LEVERAGE IS
even larger market share, they conclude. GOING TO COME DOWN,
Of course debt advisors, hired to get BUT I DONT THINK IT WILL
the best financing deal for their clients, GRIND TO A HALT BECAUSE
can only be expected to argue for lower THERES SO MUCH PENT UP
financing costs, though, unlike most bor- DEMAND FOR M&A
rowers, they are not paying the interest Swagata Ganguly
rates themselves and have a birds eye view
of the market.
Green says that some of the funds are
looking for 8 percent all-in on deals, while
others have adjusted down to 6-7 percent.

An n ua l Rev i ew 2015 | Private Debt Investor 15

 ANNUAL REVIEW

EUROPE

CAN THE REAL DIRECT LENDERS PLEASE STAND UP?

More and more debt funds are looking to the large pool of
sponsorless borrowers to deploy cash. Debt managers that dont
target this market shouldnt be calling themselves direct lenders,
PDI argued earlier this year.
And the summation by Investecs Jason Green of the difference
between covering sponsors and sourcing unsponsored
transactions reinforces that view. Debt funds are increasingly
looking at the sponsorless market, he says. Deploying capital in
the sponsor market involves 15-20 lunches to cover the market.
In contrast, deploying meaningful volume into the corporate
market involves lots of trains and planes to find opportunities.
And then theres a pricing question there too.
Five Arrows, Prefequity, Pemberton and Beechbrook are all
making a push into the non-sponsor-backed arena. The waters are
murkier theres no private equity due diligence report already
done and sourcing is a challenge. But the opportunity set is much,
much larger than the leveraged finance market.
Seeking another angle on the non-sponsored side, Arbour
Partners has established Arbour Capital to bring together non-
bank lenders with SMEs seeking finance.
James Newsome of Arbour explained the rationale in PDIs
sponsorless lending roundtable last year: There are thousands
of these companies in the UK. The trouble is, were sitting in St
Jamess Square, and these thousands of companies, if they think
of fund managers in London, they think of hedge fund managers,
who go around in helicopters. They are yet to be aware of this
kind of capital, which we can provide, which is patient money,
match-funded. n

And that means convincing investors to after jumping from zero in 2012 to 16
accept lower returns or turning to leverage percent in 2013.
to make up the difference. Finding a debt fund manager who will
Altium, the debt advisory firm, says that own up to reducing their return expecta-
debt funds have made in-roads into the tions in Europe is difficult. Ares Jacobson
German market by accepting lower returns says that the firms European loan pricing
and becoming more flexible on covenants has been stable for the seven years it has
and documentation generally. It said alter- been active.
native lenders share of the German market BlueBay Asset Management has lowered
was flat year-on-year at 26 percent in 2015 its net IRR expectations for Fund II. But
then BlueBay was always at the higher end
MARKET SHARE OF DEBT FUNDS of the return target given its targeting of
IN THE GERMAN MARKET a higher concentration portfolio of event-
driven financing. The first fund targeted
100%
10-12 percent with the firms 2 billion
90%
second fund aiming for 9-11 percent, as
80%
PDI reported last year.
70%
74% 74% Debt advisors argue that in the long-
60% 84%
run, private lenders will have to increase
50% 100%
their return expectations.
40%
In the shorter-term, however, debt
30%
funds are seeking to make hay while the
20%
24% 23%
sun shines. With the US and European
10% 14% high-yield bond markets all but shut in
0% 2% 2% 3%
2012 2013 2014 2015 the opening weeks of 2016, alternative
n Debt Fund in Senior Deal lenders smell opportunity. Its not nearly
n Unitranche as pronounced in Europe as in the US,
n Banks only where margins have bolted up by a clear
Source: Altium Mid-Cap Monitor 100bps or more over the last six months,

16 Private Debt Investor | Annua l Re view 2015

 Shaping
Financing Alternatives
for European SMEs.

Kartesia is an independent specialist finance provider adapted to small and middle-market companies across Europe.
Our tailor-made and creative liquidity solutions in time-sensitive and challenging situations make us a partner of choice
for private equity sponsors, management teams, banks and mezzanine lenders. We strive to build strong alignment of
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kartesia.com Bond Street House
14 Clifford Street
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Tel.: +44 203 700 33 30
Kartesia Advisor LLP Kartesia Management SA
Gachard House 5, rue Guillaume Kroll,
88 rue Gachard L1882, Luxembourg,
1050 Brussels Tel. : +352 27 860 780 / 783
Tel.: +32 2 808 02 36
 ANNUAL REVIEW

EUROPE
TRENDSPOTTING: MARKETPLACE LENDERS
Probably the most alternative Ranger Direct Lending followed
of alternative lenders are the before marketplace lending
marketplace lending platforms, platform Funding Circle offered its
or peer-to-peer (P2P) lenders. own fee-free UK investment trust,
With a large number of raising 150 million in November.
institutional investors piling The London-listed investment
into the sector, P2P probably trust structure became the
isnt the most accurate of permanent capital vehicle of
monikers these days, but it is choice for these market place
catchier than marketplace. lenders.
Several managers sought Elsewhere, the platforms gained
(and successfully raised) traction with authorities and more
permanent capital to invest into established financial institutions
assets originated by a number Funding Circle founders Samir Desai, James Meekings and Andrew Mullinger when the UK government gave
of marketplace lenders in the the go ahead to a new P2P version
US and Europe, including Victory Park which raised 200 million by of an established tax-free saving scheme and Royal Bank of
listing VPC Specialty Lending on the London Stock Exchange in March Scotland announced a deal to refer rejected SME lenders to certain
before raising another 183 million in fresh capital in September. marketplace lending platforms.

TOTAL NUMBER OF EUROPEAN fresh downturn that hits portfolios with

UNITRANCHES a wave of defaults.
28 67 92 The bears argue that stock markets are
overdue a correction on the back of high
CAPE ratios (cyclically adjusted price-to-
37
earnings ratio) a sometimes prescient
22
leading indicator. Other tail risks include
20 potential global financial turmoil on the
20
back of a hard landing for the Chinese
15 16
economy and the knock-on effects of a
15
6
19
substantial slowdown in emerging mar-
5
2 10 kets which have driven global growth for
2013 2014 2015 five years. On top of all this, a rising dollar
n Others n France means the supply of cheap debt to the rest
n Germany n UK
of the world has dried up.
Source: Altium Mid-Cap Monitor
The worst case scenario, however, is
but there are good, juicy deals to be done unlikely, says Evercores Ganguly.
while volatility persists, argue lenders. M&A will slow down, asset prices will
One danger is that Europe will miss come off a bit, [loan] pricing will rise and
out. A lot of money has been raised for leverage is going to come down, but I dont
mid-market corporate debt and European think it will grind to a halt because theres
banks rarely noted for their discipline so much pent up demand for M&A, he says.
arent backing away from the challenge. That demand for assets combined with
The other, albeit unlikely, risk is that the significant volumes of debt coming due in
volatility that has thus far furnished debt 2017 and beyond, should keep European
managers with opportunities prompts a lenders busy this year. n

18 Private Debt Investor | Annua l Re view 2015


UNITRANCHE
Turning the world
upside down
Unitranche loans are continuing to evolve with the wider private debt market as they
make their presence felt on both sides of the Atlantic, writes Claire Coe Smith
I
n many ways, the unitranche product
came of age over the last 12 months.
Growing in popularity and maturing
as a financing option on both sides of the
Atlantic, private debt providers entered
the mainstream as banks lost their crown
as the only financing game in town.
In the US, the unitranche story was
one of innovation, with the product
range expanding as the number of lend-
ers increased dramatically. Unitranche is
now available across the upper and lower
mid-market with facilities from $10 mil-
lion to $500 million on offer and a plat-
form of product options.
Stephen Boyko, co-head of the multi-
tranche finance group at the law firm
Proskauer in Boston, says: The story last
year in the US was one of a lot more lend-
ers coming into the unitranche space, so its
now a pretty robust market, with literally
dozens of lenders willing to create prod-
ucts. Unitranche has turned into much
more of a platform, with people taking
two-document deals, whether senior/
mezzanine or first-lien/second-lien, and
creating a unitranche synthetically.
In both US and European debt financ-
ings, the unitranche market has long
divided into straight and bifurcated deals,
with the former referring to senior stretch
loans that provide five or six turns of lever-
age as an alternative to a more traditional
first-lien/second-lien, or senior/mezza-
nine, structure, with the lenders sharing
the payments on a ratable or priority basis.
Bifurcated unitranche looks, on the face
of it, like a single credit facility, but the
loan is sliced into first-out and last-out
loans, with the first-out lender getting
An n ua l Rev i ew 2015 | Private Debt Investor 19
ANNUAL REVIEW
payment priority and last-out benefitting
from skimmed interest and terms set out
in an agreement between the lenders.
Historically, most of the deals in the
US were bifurcated, while most in Europe
were stretch senior, so-called straight uni-
tranches, with the expectation that the
Europeans would ultimately move towards
the US model. In fact, the opposite proved
to be the case in 2015.
The US market has moved toward a
more simplified offering, Boyko says. Most
of the unitranche deals we are seeing this
year are senior stretch loans, rather than
the bifurcated unitranches, which in the
past were more common. For the first
time the majority of our unitranche deals
are straight unitranches, and we see this
as part of a theme of simplicity. He sees
this as a sign of maturity in the market.
 ANNUAL REVIEW
UNITRANCHE
For a number of years we have seen
lots of players entering the market, and
a lot of complexity around structures,
and we are now starting to see a bit of
settling out and more of our clients are
doing the whole capital structure them-
selves, or bringing in a partner to do an
upside-down deal.
Our clients are really yield-driven,
so when they find good deals with strong
management teams in great industries they
want to keep it. So they will give away the
first turn or two, but they are largely hold-
ing the risk themselves.
A new feature of the market is the
upside-down deals that Boyko refers to,
where there is a much larger last-out loan
and a first-out thats typically only a turn
or two of leverage.
About half the bifurcated unitranche
deals we saw last year were these upside-
down deals and thats driven by the domi-
nance of the business development com-
panies (BDCs) in the market, who are the
ones out there originating the deals, and
then bringing in the first-out lenders,
says Boyko.
Its really turning the typical structure
on its head, because the BDCs are securing
the deals and taking the bulk of the risk,
and then bringing in a partner to take out
the first turn or two of leverage.
ATLANTIC DIVIDE
Meanwhile, the European market, which
had been expected to start bifurcating a
lot more unitranche deals, has favoured
the non-amortising stretched senior loan
structures.
In our opinion, there are two principal
reasons why that bifurcated unitranche
product hasnt taken off in Europe, says
Faisal Ramzan, a partner with Proskauer
in London. First, there is a bit more of
a lack of understanding of the nuances
behind the bifurcated product in Europe,
20 Private Debt Investor | Annua l Re view 2015
FOR THE FIRST TIME
THE MAJORITY OF OUR
UNITRANCHE DEALS ARE
STRAIGHT UNITRANCHES,
AND WE SEE THIS AS PART
OF A THEME OF SIMPLICITY
Stephen Boyko
and a lack of familiarity. Secondly, there
is significant liquidity in the European
market, and a lot of debt funds, and
banks, havent been able to deploy capital
to the extent that they would have liked.
So when deals have come to market, the
funds have been able to make large invest-
ments and write slightly larger cheques.
That said, Proskauer helped structure
one of the first bifurcated unitranche
deals in Europe at the end of 2014, and
split deals are happening, with intercredi-
tor agreements getting increasingly swift
to negotiate as they are seen more often.
The result is a convergence in the
structures on both sides of the pond
coinciding with an uptick in the number
of lenders and the availability of the prod-
uct. The number of partnerships between
debt funds and banks has also ballooned,
particularly in the US.
Boyko says: We have seen a lot of
activity on the partnership side, and I
think thats because the banks are trying
to make sure they are still in the flow of
deals, because in a sense these large BDCs
have very sizeable originating networks
and are competing head to head with the
banks.
If the banks want to be lending a
couple of turns into the structure, they
really need to pick a dance partner. From
the BDC perspective, they can lever up
their returns by bringing in somebody
else, so I think we will see a lot more of
these joint ventures coming in 2016. Im
personally aware of three in documenta-
tion right now.
In Europe, alternative lenders market
share had been expected to skyrocket, the
unitranche providers have not had it all
their own way.
Ben Davis, a partner with the law firm
Reed Smith in London, and a regular advi-
sor to large debt funds, says: The market
share of the alternative lenders has been
holding reasonably steady in the UK,
despite predictions that it would increase
to levels seen in the US, and that is partly
because the banks continue to be reason-
ably competitive. They have developed a
European version of term loan B that is
price competitive to unitranche, with
some additional flexibility in terms of
covenants, and so it really is a very com-
petitive landscape.
He adds: The banks are putting up a
good fight, but the unitranche providers
really are very flexible in terms of what
they can offer, and have a huge amount of
capital to deploy, so they are finding ways
to make themselves relevant and continu-
ously innovating.
Several significant deals have high-
lighted the ability of European unitranche
providers to finance larger mid-market
transactions. Notably, last November Ares

BlueBay Asset Management provided a
unitranche facility to Silverfleet Capital in
its acquisition of Masai Clothing Company,
one of the first such financings in Denmark
NEW PLAYERS
Marlborough estimates that there are
now roughly more than 70 credible direct
lenders in Europe with dry powder by fund
ranging from 250 million to 2 billion-
3 billion. Back of the envelope calculations,
it says, would suggest dry powder in the
region of more than 35 billion, assuming
an average of 500 million to deploy.
provided one of the largest bilateral uni-
tranches yet executed by a debt fund in
Europe, when it underwrote a 300 mil-
lion financing package for French invest-
ment firm Eurazeo to buy Irish tax-free
shopping firm Fintrax. The package
included a 250 million unitranche loan
and 50 million of undrawn lines.
The same month, Intermediate Capital
Group provided a 155 million ($224
million; 201 million) unitranche loan to
UK gaming company Gala Bingo.
There are now maybe two or three
debt funds in the market that are able to
underwrite a 200 million-300 million
unitranche facility, which really makes
the unitranche market able to compete
against the term loan B and high-yield
products and takes them to another level
at the upper end of the mid-market, says
Davis.
At the same time, unitranche is moving
beyond the UK, France and Germany and
into new jurisdictions in Europe. Last
year, BlueBay Asset Management pro-
vided a unitranche facility to Silverfleet
Capital in connection with the acquisition
of a Danish womenswear brand, Masai
Clothing Company, in one of the first uni-
tranche financings in Denmark, and EQT
Partners provided a unitranche facility
UK DEAL COUNT (TOP THREE DIRECT LENDERS)
30
25
20
Number of deals
15
10
5 186
0
Source: Marlborough Partners 2012
ANNUAL REVIEW
to refinance Mikeva, a care provider in
Finland, in one of the first unitranche
deals in that country. Romain Cattet is
a partner at Marlborough Partners, the
debt advisory business. He says that the
acceptance of the unitranche product on
the demand side really shifted in Europe
in 2015: Private equity guys can be quite
conservative, and they didnt know who
these guys were, and had their existing
banking relationships, so it took a bit of
time to accept that the debt funds werent
necessarily aggressive, but were alterna-
tive lenders with a commercial mindset.
That took two or three years, and,
meanwhile, many, many more debt funds
came into the market and the product
got more flexible, cheaper, and the funds
started to lend bigger amounts.
Chris Lowe, who leads the leveraged
finance team at EY in London, adds:
Last year was a year of maturity in the
unitranche market, where it very much
became the norm that the credit funds
featured in nearly every process that we
advised on. The emergence of new funds
also slowed massively, so it was the year
when new funds probably peaked. Last
year we saw more fund deals than bank
deals for the first time.
It looks like unitranche came of age. n
25
20
16
8
2013 2014 2015
An n ua l Rev i ew 2015 | Private Debt Investor 21
 ANNUAL REVIEW
ASIA-PACIFIC
Playing the numbers game
Private debt funds saw growing numbers of distressed debt opportunities in 2015
and could play a bigger role in clearing non-performing loans in the year ahead,
reports Denise Wee
W
ith Chinas economic slow-
down further entrenched,
private debt funds saw more
distressed debt opportunities in Asia last
year and can expect that to continue in
2016.
We saw last year and continue to see
more opportunities on the distressed side,
whether its companies having financing
issues, or financial institutions that are
looking to sell loan portfolios, says Edwin
Wong, chief investment officer of Hong
Kong-based SSG Capital Management.
This is one of the rare times when we
see pretty large portfolios coming from
global and regional banks that have to get
rid of some of their more troubled assets.
Last year, private debt fundraising
focused on distressed debt strategies
amounted to $830 million, more than
double the $300 million raised in 2014,
22 Private Debt Investor | Annua l Re view 2015
according to PDI Research & Analytics.
Looking ahead, those opportunities are
expected to increase.
In a slowing economy, as well as in
certain sectors like energy, there is no
doubt that there will be more distressed
opportunities, says Joseph Chang, prin-
cipal, private markets group at Mercer.
In China, non-performing loans (NPL)
are on the rise. Ratings agency Standard
& Poors estimated that Chinese banks
NPL ratio stood at 2.2 percent as of end
2015, up from 1.7 percent a year earlier.
IN A SLOWING ECONOMY,
The agency expects that ratio to reach 3
AS WELL AS IN CERTAIN percent by the end of 2016.
SECTORS LIKE ENERGY, The ratings agency said that so-called
THERE IS NO DOUBT special mention loans, referring to those
THAT THERE WILL BE that are performing but vulnerable to
MORE DISTRESSED adverse market conditions, have risen
OPPORTUNITIES to 3.8 percent of Chinese commercial
Joseph Chang banks total loans as of September 2015,
Thank You...

for supporting and recognizing

SSG Capital Management

in 2015 as:

Distressed/Special Situations Firm of the Year, Asia Distressed debt investor

of the year, Asia-Pacific

Lender of the Year, Asia-Pacific

Distressed Debt Investor of the Year, Asia-Pacific

Real Estate Debt Fund Manager of the Year, Asia-Pacific

Lender of the year,

and for the: Asia-Pacific

Fundraising of the Year, Asia-Pacific

www.ssgasia.com

Real estate debt fund

manager of the year,
Asia-Pacific

hong kong | singapore | shanghai | mumbai | jakarta | bankgkok

Nothing in this advertisement shall constitute an offer to sell, or solicitation of Fundraising of the year,
an offer to buy, securities and/or a commitment to enter into any transaction Asia-Pacific
20152016 SSG Capital Management Ltd. All Rights Reserved.
 ANNUAL REVIEW
ASIA-PACIFIC
up from 3.1 percent at the end of 2014.
Private debt funds saw more NPL port-
folios for sale in 2015 but, for now, banks
are unwilling to let those assets go at a
deep enough discount.
We have definitely seen more NPLs
for sale by Chinese banks and asset man-
agement companies since last year, but I
dont think too many of them are attrac-
tive from a pricing perspective, says
Barry Lau, managing partner of Adamas
Asset Management.
According to Lau, non-performing
Chinese real estate loans, which are
backed by hard assets, are on offer at
BEFORE 2015, OUR around 90 cents on the dollar, while
DEALFLOW WAS MOSTLY NPLs of manufacturing and industrial
FROM CHINA. BUT companies are offered at 30-40 cents to
THINGS CHANGED QUITE the dollar.
DRAMATICALLY. WE While he does not think these levels of
STARTED TO SEE MORE discount are attractive, he says that banks
DEALS FROM PHILIPPINES could deepen discounts in the next few
AND THAILAND, AS WELL months. The appropriate time to invest
AS AUSTRALIA AND in non-performing loans could come in
NEW ZEALAND six to 12 months, he adds.
Sabita Prakash Similarly, private debt player ADM
Capital is cautious about buying NPLs.
The firm invested in distressed debt
back in 1997, but is now more focused
on stressed companies that struggle to
access to financing.
We saw a lot of NPL portfolios
offered to us last year, but whether the
time is right to be getting into that space
and buying it we dont think so, says
Sabita Prakash, head of business develop-
ment at ADM Capital.
Until we see the banks willing to let
go of assets at cheaper prices, or more
certainty of where the bottom-line for
these companies are headed, we dont
think we will buy them.
Prakash notes that commodities
companies are still faced with freefall-
ing prices and there is a lack of clarity
on where their businesses are headed,
24 Private Debt Investor | Annua l Re view 2015
which makes it difficult to invest into
their securities.
NPLs are, however, a good barometer
for the overall health of Chinas economy
and its banks. NPLs provide us a gauge
for market sentiment and pricing as well
as the health of the economy as a whole,
says Lau.
CHINA: THE ELEPHANT
Private debt funds focusing on Asia-
Pacific raised $5.5 billion last year, the
highest amount since 2011 and a more
than three-fold rise from 2014, accord-
ing to PDI Research & Analytics. Nearly
two-thirds ($3.4 billion) came from funds
focused solely on China. This was a sharp
rise from 2014, when there was no China-
focused fund-raising.
Small to medium-sized Chinese com-
panies are starved of capital, leaving a gap
for funds to fill. Late in 2015, Adamas
Asset Management launched a $500 mil-
lion joint venture with Chinese insurance
firm Ping An, targeting lending to mid-
sized companies.
Adamas is also looking to finance Chi-
nese companies in offshore acquisitions.
Overseas acquisitions have become the
dish of the day in the last 18 months or
so, says Adamas Lau. There may come
a time, because of the all the outbound
M&A originated by Chinese companies,
we will follow them.
Lau says that listed Chinese companies
have access to funding but for the other
remaining 50 million private businesses
in China the only source of capital is from
private debt funds, especially for overseas
acquisitions.
As Chinas economy shifts from being
led by manufacturing to driven by the
services sector, it has shaped private debt
opportunities in China.
The services component of Chinas
GDP is increasing, so increasingly, the
There is the short-term, ANNUAL REVIEW

the long-term and ANALYSIS

the term that lasts REAL-ESTATE DEBT

for generations.

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PUBLIC VERSUS PRIVATE: OPPORTUNITY KNOCKS

The public bond markets are not an arena of
focus for many private debt funds who sell
themselves on accessing deeper, less liquid
areas of the debt markets. However, given
the sell-off in Asias high-yield bonds in 2015,
funds have started to look more closely.
Mercer, which advises institutional
investors on more than $12 billion of
private market investments globally, has
seen growing interest among private debt
funds in the public markets, particularly
in the commodity sector where bonds
have been battered.
For a lot of the energy or resources-
related companies throughout Asia-Pacific,
the high-yield bonds are trading at 40 to
in the secondary debt market. Management. In a bull market, we spend
While the plunge in bond prices could very little time looking at the public bond
be a function of broken balance sheets, market. But now, the pricing of some bonds
companies with healthy balance sheets have has come down to very attractive levels.
also been caught in the sell-off as hot money Wong says that SSG invested a small
flows out of the region. amount in high-yield bonds in 2015, relative
Some of the bonds dont have the to the total amount committed. He adds that
support that they would in a deep market the firm also sees opportunities to finance
like the US and have sold off for technical companies looking to buy back their stock,
reasons, says Edwin Wong of SSG Capital given how low share prices are. n
CAPITAL RAISED BY FUNDS FOCUSED ON ASIA-PACIFIC (2011-15)
6 Capital raised ($bn) Number of funds closed 16
5.51
14 14
5 12
12
Number of funds closed

4 10 10
Capital raised ($bn)

50 cents to the dollar right now, says 10

Joseph Chang, of private markets group 3 2.98 2.57

8
2.27 6
Mercer. 2
6
1.49
Depending on your view on the 4
1
underlying credit, the borrower may be 2

0
2011 2012 2013 2014 2015 0
able to pay back at par. I think right now
there are a lot of private debt funds active Source: PDI Research & Analytics

An n ua l Rev i ew 2015 | Private Debt Investor 25

 ANNUAL REVIEW
ASIA-PACIFIC
opportunities in China have come from
these sectors rather than traditional
manufacturing, says ADMs Prakash.
We will see more deals related to the
environment, food security and healthcare
in 2016.
While China was a key region in 2015,
ADM Capital saw a growing diversity of
dealflow. Based on PDI data, fundraising
focused on diversified regions amounted
to $530 million, while that focused on
Australia and Japan chalked up $180 mil-
lion and $810 million respectively. Those
figures are up from zero capital raised for
each of those regions in 2014.
Before 2015, our dealflow was mostly
from China. But 2015 was a year where
things changed quite dramatically, says
Prakash. We started to see more deals
from Philippines and Thailand, as well as
developed markets such as Australia and
New Zealand.
GROWING TRACTION
Asias under-allocated private debt mar-
kets attracted more interest from home-
grown investors in 2015. In countries like
Japan, where interest rates have moved
into negative territory, the returns from
private debt can be appealing.
There was a lot more traction in the
LP community in Asia last year than there
has been in the past, particularly from
Korean pension funds and larger Japa-
nese funds, says Adam Wheeler, co-head
of Asia-Pacific private equity at Babson
Capital. That trend will continue and I
expect new institutions will start to have
permanent allocations to the space.
When Babson closed its second mezza-
nine fund targeting mid-sized companies in
Asia-Pacific in May 2015, it raised $177.2
million from investors. We saw a number of
investors who had allocated to mezzanine in
other jurisdictions making first-time alloca-
tions to mezzanine in Asia-Pacific when we
closed our fund, says Wheeler.
26 Private Debt Investor | Annua l Re view 2015
IN NUMBERS
$830m
Private debt fundraising focused on
distressed debt strategies in Asia,
according to PDI Research & Analytics
2.2%
WE SAW A NUMBER
OF INVESTORS WHO Chinese banks' non-performing loan
HAD ALLOCATED TO ratio at 31 December 2015...
MEZZANINE IN OTHER
JURISDICTIONS MAKING
1.7%
FIRST-TIME ALLOCATIONS
TO MEZZANINE IN
ASIA-PACIFIC ...Chinese banks' NPL ratio a year earlier,
Adam Wheeler according to Standard & Poors
The fund focuses on private equity-
sponsored deals targeting companies with
enterprise values of $50 million-$200
$5.5bn
Capital raised by private debt funds
million. According to Mercers Chang, focused on Asia-Pacific in 2015
while interest in the region has been
growing, global institutional investors
have been slower to focus on Asia, com-
pared with the US or Europe.
The region also lacks the sophistica-
14
Number of funds focused on Asia-Pacific
tion in terms of deal structures. However, that closed in 2015
there were baby steps in this regard in
2015, as borrowers sought flexible fund-
ing packages that banks traditionally do
not provide.
We closed a couple of deals last year
6
number of funds focused on Asia-Pacific
approaching what a unitranche structure that closed in 2014
in Europe would look like and they are
getting traction with the private equity
$810m
community, says Wheeler.
Alternative lenders continue to make
in-roads in providing performing credit in
Capital focused on Japan raised in 2015,
Asia-Pacific. But it is the distressed assets according to PDI Research & Analytics
public and private that managers in
the region are watching in 2016. n
ANNUAL AWARDS 2015
 Flexibly DEsigned
solutions
providing corporate investment
for 27 years.

Contact: Andreas Mondovits - Head of Marketing and Client Relations

mcr@icgam.com
+44 (0)20 3201 7700
www.icgam.com

This advertisement is issued by Intermediate Capital Managers Limited, which is authorised and regulated by the Financial Conduct Authority. The value of investments can go down as well as up.
 PDI ANNUAL AWARDS 2015
METHODOLOGY AND WINNERS
In the fast lane
The private debt industry is becoming increasingly competitive, as we saw in PDIs annual
awards, writes Rachel McGovern
W
e are delighted to present
the results of Private Debt
Investors third annual awards
the only awards decided solely by the
industry, for the industry.
With roughly 3,000 votes gathered,
its clear that private debt inspires strong
views.
We began the process at the end of
last year, shortlisting names for the 39
categories across three broad regions:
the Americas, Europe and Asia-Pacific.
Selections by the PDI editorial team
were guided by market knowledge,
hours of conversations with experts and
investors, as well as discussions with our
editorial colleagues in New York, London
and Hong Kong.
These conversations are important
and give smaller firms the opportunity
for market recognition. But the real deci-
sion lay with you. So in December we
threw open voting to the private debt
market itself.
Our lender of the year in the Americas
was Golub Capital for the second year
running. The firm also won the senior
lender and BDC of the year categories.
In Asia-Pacific, SSG proved its popu-
larity, executing an almost clean sweep
by winning in four different categories:
lender of the year, distressed debt inves-
tor of the year, real estate lender of the
year and fundraising of the year.
In Europe, another private credit giant
swept the board ICG. The London-
listed asset manager has grown substan-
tially with assets under management now
topping 20 billion. The strength of its
30 Private Debt Investor | Annua l Re view 2015
two flagship European funds, Senior Debt
Partners and its junior strategy, now onto
its sixth iteration was emphasised by the
firm winning the lender, senior lender
and junior lender of the year titles.
The other shortlisted managers gave
them a run for their money, particularly
in the senior lender category.
This year we added a number of new
categories, including investor of the year
and fund financier of the year. We were
keen to acknowledge the importance
of the capital providers and managers
seemed to enjoy turning the tables in
rendering judgment.
Our other new category is our only
global one. Newcomer of the year is open
to managers less than five years old and
have demonstrated the ability to get a
robust outfit up and running while con-
tributing to the development of the still
young asset class. This was another closely
contested race with Legal & General-
backed Pemberton pipping Susan Kassers
private credit team at Neuberger Berman
to the post.
The team at PDI would like to con-
gratulate the winners on their achieve-
ments throughout 2015. Our runners-up
THERE WERE A LOT all deserve recognition too. There were a
OF CLOSE RESULTS, lot of close results, and with firms pre-
AND WITH FIRMS vented from voting for themselves each
PREVENTED FROM vote really counts as an acknowledgement
VOTING FOR THEMSELVES of excellence by the market.
EACH VOTE REALLY It was a momentous year for the pri-
COUNTS AS AN vate debt market. A hearty congratula-
ACKNOWLEDGEMENT tions to everyone who worked hard to
OF EXCELLENCE BY drive it onwards and upwards, and con-
THE MARKET tinues to do so in the year ahead. n
 WE ARE HONORED. Thank you for recognizing the coordination, speed and
power we consistently invest in closing a transaction.

Lower mid-market lender

of the year, Americas

2014
Senior Lender of the Year, Americas

2013
Unitranche Lender of the Year, Americas

monroecap.com

Chicago New York Los Angeles San Francisco Atlanta Boston Charlotte Dallas Toronto
2016 Monroe Capital LLC
 PDI ANNUAL AWARDS 2015

GLOBAL

Newcomer of the year player in the market, Pembertons manag-

Pemberton
Highly commended:
Neuberger Berman,
AB Private Credit Investors
A new award designed to recognise the
firms that have worked hardest to set
standards, build significant infrastructure
and establish market share in a nascent
asset class that has a large number of
new managers, newcomer of the year was
one of the most hotly contested races this
year.
Neuberger Berman was beaten to the
crown by a flurry of late voting that saw
London-headquartered Pemberton win
the day. Asked how it feels to be a new
ing partner Symon Drake-Brockman says:
Its nice to be fresh and new, but to have
the scale to compete across the whole of
Europe.
Pemberton, now just over two years old,
got significant backing in 2014 when UK
insurer Legal & General took a 40 percent
stake in the firm. It will reach a final close on
its debut direct lending fund by the middle
of this year.
The vehicle is targeting over 1 billion
and the firm is also in discussions with in-
vestors about launching two more strate-
gies; a subordinated debt fund and a fund
that will invest into short-dated senior se-
cured loans to companies that are just be- Simon Drake-Brockman: Pemberton is new but
low investment grade. can also compete across Europe

THE AMERICAS

Lender of the year
Golub Capital
Highly commended:
GSO Capital Partners,
Ares Capital Corporation
The US mid-market lender had a strong year
across the board, in terms of fundraising, origi-
nation, expansion and new hires. The firm origi-
nated $14 billion in new loans in 2015, holding
about $8.4 billion of that its largest volume yet.
Golub also bagged its largest deal thus far last
Andy Steuerman, head of mid-
year. The firm usually prefers to work with return- market lending at Golub Capital
ing sponsor clients, though having a larger as-
set base has also allowed the lender to work with increasingly
larger sponsors.
During 2015, Golub also hired a dedicated non-sponsored
deal originator. Brian Davis joined in August from TPG and
opened a new office in Charlotte, North Carolina.
Other hires included Chip Cushman from Antares Capital
and Joseph Wilson from Citigroup. Wilson joined as head of
sales and trading and is tasked with expanding the firms rela-
tionships with buyers of leveraged loans and sourcing second-
ary market opportunities.
Having closed its ninth lending fund at $970
million in July, the firm launched Fund 10 imme-
diately after following strong deployment. The
Texas Municipal Retirement System invested
$300 million in a direct lending separate ac-
count with Golub in December, part of the pen-
sion funds first foray into direct lending.
Senior lender of the year
Golub Capital
Highly commended:
Ares Capital Corporation,
TPG Specialty Lending
About 70 percent of the $8.4 billion in loans that Golub held on
book in 2015 went into unitranche deals. The firm has a strong
unitranche franchise, arranging deals and then syndicating slices
of the debt to other lenders.
Last year, the firm led its largest such deal yet: a $515 million
refinancing package for Data Device Corporation (DDC). The
company is a manufacturer of electronics and components for the
military and aerospace defence industries controlled by Behrman
Capital, and the loan was an add-on to Golubs original $330 mil-

32 Private Debt Investor | Annua l Re view 2015

 Global Newcomer

thank you for making us of the year

Global Newcomer of the Year

BACKING CORPORATES AND SPONSORS ACROSS EUROPE

7
LOCATIONS

45
PROFESSIONALS*
LONDON AMSTERDAM
FRANKFURT
PARIS LUXEMBOURG

25,000
POTENTIAL COMPANIES
MILAN

MADRID
Mike Anderson
E: mike.anderson@pembertonam.com
T: +44 (0) 20 7993 9311
Symon Drake-Brockman
E: symon.drake-brockman@pembertonam.com
T: +44 (0) 20 7993 9301

www.pembertonam.com
Pemberton Capital Advisors LLP 2016. Pemberton Capital Advisors LLP is authorised and regulated in the UK by the Financial Conduct Authority.
* Includes advisors, analysts and consultants
 PDI ANNUAL AWARDS 2015

THE AMERICAS

lion senior credit facility that refinanced DDC in July 2014. Andy Lower mid-market lender of the year
Steuerman, Golubs head of mid-market lending, notes that a deal Monroe Capital
of this size and scope would normally only be led and syndicated Highly commended:
by a bank, but the facility proves alternative lenders can execute NXT Capital,
such transactions. NewStar Financial
In December, Golub participated in one of the largest deals in
the market: Pamplona Capitals $2.7 billion leveraged buyout of The Chicago-based firm won PDIs
healthcare analytics provider MedAssets. Although Golub didnt inaugural lower mid-market lender
lead the $1.73 billion financing, the deal was the largest in which of the year award after putting $1.6
Golub took an arranging role. The other lenders were Barclays, billion to work last year, outpacing
Morgan Stanley and Macquarie. its 2014 volume of $1.2 billion. The
money financed 41 directly origi-
nated transactions and 25 club deals,
Junior lender of the year with an average loan size of around
GSO Capital Partners $40 million.
Highly commended: The firm led by president and
Highbridge Principal Strategies, chief executive Ted Koenig also made
Crescent Capital Group Ted Koenig has seen his firm several senior hires in 2015, opened
go from strength to strength
new offices and expanded its indus-
GSOs mezzanine group had its try coverage. It hired Mark Sturrock in October to lead origination
busiest year yet in terms of junior from a new office in Toronto. Sturrock, who joined from ABL lender
capital deployment. The Black- Salus Capital, is an industry generalist. Monroe also tapped former-
stone-owned firm put $1.2 billion Salus investment professionals Andy Moser and Marc Price for its
to work with a pick-up in the sec- Boston office to lead a new retail and consumer products industry
ond half of 2015. vertical. Monroe is in the process of recruiting more staff to build its
The diversity of dealflow retail practice and in other areas.
in 2015 really highlighted the Monroe now has nine offices throughout North America with 16
breadth of what we do, says Lou direct origination professionals. The firms second Monroe Private
Salvatore, a senior managing di- Credit Fund has already beaten its $600 million target after launch-
rector at GSO who oversees the ing in late 2014 and should close at the $750 million hard-cap this
Lou Salvatore heads GSOs
mezzanine strategies. The transac- quarter.
mezzanine business
tions spanned the gamut of indus-
tries and sectors. The firm sourced deals from sponsors in the
US and Europe, bought them from banks at discounts and did BDC of the year
direct deals through banks and corporations. Golub Capital BDC
GSO was also able to move further into Europe, as the Highly commended:
mezz funds had the ability to invest alongside the 2 billion Goldman Sachs BDC,
European debt fund that GSO raised in 2015. European fa- TPG Specialty Lending
cilities tended to be structured as unitranche, while in the US
it extended a combination of mezzanine, second lien, uni- The mid-market lenders $1.6 billion BDC reported its 14th consec-
tranche and unsecured loans. utive rise in net asset value (NAV), at a time when many of its com-
Although the returns on the mezzanine funds posted a petitors have been posting declines. The vehicle also touted other
1.7 percent loss in 2015 due to market turmoil, the firm has healthy financials in its full-year earnings report when many others
achieved 18 percent net returns in the strategy since incep- have been beaten down by energy mark-downs, credit losses and
tion. The second GSO Capital Opportunities fund, which declining stock values.
closed on $4 billion in 2012, has shown a 15 percent net inter- Analysts often give Golubs BDC high marks for its shareholder-
nal rate of return since inception. friendly fees and terms. GBDC is a best-in-class BDC with a strong

34 Private Debt Investor | Annua l Re view 2015

 PDI ANNUAL AWARDS 2015

THE AMERICAS

credit platform and a focus on the Oaktree has also been setting up distressed investing initiatives
top of the capital stack, providing a in Europe. The firm launched fundraising for its Oaktree European
fully covered 8.3 percent dividend Principal Fund IV last year. The performance on the previous fund
with stable NAV performance, said a has held up well, with Oaktree reporting a 15.6 percent net IRR
report from Wells Fargo BDC analyst since inception for the third European Principal fund.
Jonathan Bock.
NAV per share rose to $15.89 at
the end of December, from $15.80 as CLO manager of the year
of 30 September. CIFC
We believe we are well-posi- Highly commended:
David Golub has seen 14
tioned to continue to do well in 2016. The Carlyle Group,
consecutive rises in NAV Our strong credit results allow us to- Onex Corporation
play offence when others are playing defence. Our certainty of ex-
ecution is more valuable to our clients today, particularly on larger In a year when CLO issuance was
middle market deals, and we are seeing improving terms on new down, CIFC was one of few manag-
business, says David Golub, chief executive of the BDC. ers to maintain issuance at roughly
the same volume as 2014. The firm
closed its fifth CLO at $510.5 million
Distressed debt investor of the year in November. The transaction was ar-
Oaktree Capital Management ranged by Credit Suisse and support-
Highly commended: ed by 14 institutional investors, five of
Oak Hill Advisors, which were first-time CIFC clients.
Fortress Investment Group Since 2012, CIFC has been a reg-
ular issuer of CLOs, raising about $10 Oliver Wriedt: volatility will
Although performance in some of billion of assets under management make strategy more attractive
Oaktrees US distressed funds de- across 18 transactions.
clined over the past two years, Oak- None of CIFCs new CLOs in 2015 were risk retention compli-
tree is still the go-to brand name ant. Though the firms ability to get that many non-compliant deals
when it comes to distressed. And done in a year before the deadline is actually a testament to the
better opportunities are on the way, markets confidence in CIFCs platform, co-president Oliver Wriedt
Oaktrees management pointed out told PDI.
on recent earnings calls highlighting The firm also launched its second CLO co-investment fund last
equity market volatility, the high- year, as well as a CLO secondary strategy.
yield sell-off and continued declines Wriedt said that the volatility in the second half of the year
in energy. bound to push secondary spreads wider, making this a more at-
Howard Marks sees energy
Howard Marks, Oaktrees chair- concerns spilling over into tractive strategy.
man, said he can already see the other industries

energy concerns spilling over into

other industries such as retail and media. Even though he doesnt Infrastructure debt manager of the year
think 2016 will be a full-fledged recession, some of these market Allianz Global Investors
headwinds will make for better investment options for Oaktrees Highly commended:
strategy. AMP Capital,
And the firm is already well prepared to pounce on these op- Hastings Funds Management
portunities, having collected $10.5 billion for its 10th US distressed
pool, the Oaktree Opportunities Fund X and Xb, which also helped The German insurers infrastructure debt arm made its first US debt
it to claim PDIs fundraising of the year award in the Americas this deal this year, investing $700 million in a comprehensive debt re-
time round. structuring for the Indiana Toll Road. The team also invested $60

An n ua l Rev i ew 2015 | Private Debt Investor 35

 PDI ANNUAL AWARDS 2015

THE AMERICAS

million in the Kentucky Information million construction loan secured by a retail project in Miami; a
Highway, a state-wide, fibre-optic $450 million construction loan on a Manhattan condominium pro-
broadband network, last year. ject; a $400 million office refinance in Manhattan; the origination of
Our involvement in the transac- a $330 million condominium conversion at One Rincon Hill in San
tion was well-received by the public Francisco; and a $320 million refinancing of the Woolworth Build-
and proved that long-term institu- ing in Manhattan.
tional investors can add value in more The firm also began raising $4 billion for its BREDS III fund in
complex infrastructure assets, says the autumn and had already collected $1.3 billion for a first close
Deborah Zurkow, head of infra debt by the end of the year.
at Allianz.
Deals in the US have been fol-
Deborah Zurkow: deals well-
received by the public lowed by dealmakers with Paul Da- Deal of the year
vid, a director with AllianzGIs infra- Lightower Highbridge/Partners Group
structure debt team in London, relocating to the New York office, Highly commended:
where he was joined by assistant vice-president Alex Ball. American Seafoods Ares Capital Corporation,
Allianzs team say they have seen a strong pipeline of US trans- Data Device Corporation Golub Capital
actions.
We are confident that our ability to grow our footprint in Amer- At a time when mezzanine has been shunned by many private debt
ica reflects the asset classs potential at a global level, Zurkow said. players in the US, Highbridge and Partners Group joined forces on a
The firm has also been growing its debt business globally. Over $500 million mezzanine loan backing the merger of Lightower and
the last two and a half years, Allianz invested over $5 billion into 20 Fibertech Networks, two fibre-optic network services providers.
transactions across 10 countries. The companies entered into an agreement to merge in April
with an all-cash transaction valued at $1.9 billion, which included
equity and debt. Lightowers existing equity backers, Berkshire
Real estate debt manager of the year Partners, Pamlico Capital and ABRY Partners, all added additional
Blackstone capital to support the deal.
Highly commended: Partners Group came to the deal from several directions. Scott
Starwood Property Trust, Essex, the firms New York-based co-head of private debt has ex-
Mesa West Capital pertise in the telecom sector, having worked for Lexent, another
telecom company that was acquired by Lightower in 2010. Partners
Blackstone Real Estate Debt Strategies Group also runs a private equity fund of funds and was an LP in
(BREDS) passed several milestones Court Square, which bought out Fibertech for $500 million in 2010.
this year. Origination volume hit a re- Partners has also worked with Berkshire on other deals in 2015.
cord $13.4 billion between its private Highbridge Principal Strategies, meanwhile, runs one of the
funds and BXMT, a mortgage REIT. biggest mezzanine businesses around. The firm closed its HPS
The firm also hired a top banking Mezzanine Partners Fund II on $5 billion in 2013 and is now raising
rainmaker as its first chief investment its third with a $5.5 billion target.
officer. Jonathan Pollack, the former Blackstone invested in One
Rincon Hill
head of commercial real estate debt
at Deutsche Bank, joined in June and Fundraising of the year
reports to Michael Nash, who oversees the real estate debt busi- Oaktree Capital Management
ness globally. Highly commended:
Another highlight was the acquisition of an $8.7 billion loan GSO Capital Partners,
portfolio from GE, with the funds taking in about $4.2 billion of Fortress Investment Group
Australian and Mexican loans and the REIT keeping the remaining
package of US loans. The Los Angeles-headquartered firm, which set out to raise its 10th
Some of Blackstones largest deals in 2015, included a $590 distressed fund in 2014, amassed as much as $10.5 billion for its

36 Private Debt Investor | Annua l Re view 2015


Oaktree Opportunities X and Xb funds. In its fourth quarter earn-
ings report, Oaktree management said they were keeping the
funds open to even more LP commitments as market turmoil in the
second half of the year drove further investor interest in distressed
strategies.
The firm has been raising two pools of capital, the first a
$3 billion vehicle to be deployed immediately, while the second
is a $7 billion reserve pool to be deployed further into the credit
cycle as more distressed opportunities come to fruition. The firm is
waiving management fees on committed capital.
The funds have scored mandate wins from a slew of large US
public pension funds, including the Massachusetts Pension Re-
serves Investment Management Board, the Teacher Retirement Sys-
tem of Texas, the Virginia Retirement System, the Kentucky Teachers
Retirement System, the Washington State Investment Board and the
Oregon Public Employees Retirement System, among others.
Investor of the year
Pennsylvania Public School Employees
Retirement System
Highly commended:
New Jersey Division of Investments,
Orange County Employees Retirement System
Investors getting into private debt
are often faced with the question of
where to plug these strategies into
their portfolio. The Pennsylvania Pub-
lic School Employees Retirement Sys-
tem (PSERS) pension fund has taken
a sophisticated dual-track approach.
The LP has been building up a 2 per-
cent allocation within its private equi-
ty portfolio for distressed-for-control
strategies, while also investing about
James Grossman: returns are
holding up really well 6 percent in more traditional direct
lending and credit/trading funds
within its high-yield fixed-income
bucket. The pension invested about $1.2 billion in the high-yield
category in 2015 and $450 million in private equity distressed. The
pension is at its target on the high-yield front and slightly above it
within private equity.
Since inception, the private equity sleeve has delivered a net
IRR of 13.7 percent, while the high-yield portion has returned
about 9.5 percent.
The returns are holding up really well. These portfolios are do-
PDI ANNUAL AWARDS 2015
THE AMERICAS
ing what we expected them to do, says James Grossman, chief
investment officer at PSERS. In line with building this portfolio, the
$51 billion pension fund also hired its first private debt portfolio
manager. James del Gaudio joined in April from the New York City
Comptrollers office.
Fund financier of the year
Wells Fargo
Highly commended:
Goldman Sachs,
SunTrust
The US bank firmly beat its rivals to
win this crown and looking at the
range of services for its alternative
lender clients its little surprise. Sup-
ports include lining up credit lines,
helping structure and raise money for
CLOs and partnering on asset-based
loans or revolving credit facilities.
Many of the banks clients say the firm
excels on all these aspects and is well
integrated across its platform, where
Mary Katherine Dubose
its easy to liaise between the divisions co-leads the asset-backed
finance platform
and people that offer these services.
In 2015, Wells Fargo opened 26
lending facilities for 21 clients totalling more than $5 billion in vol-
ume. CLO structuring volume included 19 transactions worth $10
billion last year. Mary Katherine Dubose and Chris Pink co-lead the
asset-backed finance platform. Jason Powers and Kevin Sunday,
who report to Dubose and Pink, lead corporate finance. Dubose,
Powers and Sunday are based in Charlotte, North Carolina, while
Pink is based in New York.
Law firm of the year
Dechert
Highly commended:
Latham & Watkins,
Proskauer
The law firm has rebounded strongly from the downdraft of 2007-
08 and has been building up relationships with alternative lend-
ers on several fronts. Dechert is a go-to advisor for many lend-
ers on CLO structuring, commercial real estate loans, structured
finance, asset-based loans, business development companies
An n ua l Rev i ew 2015 | Private Debt Investor 37
 PDI ANNUAL AWARDS 2015
THE AMERICAS
(BDCs) and lending joint ventures.
In 2015, Dechert worked with
a number of the large alternative
lenders, including Golub Capital,
Apollo Global Management and
NXT Capital, on CLOs.
The firms global footprint also
leads many lenders to tap Dechert
for work on complex cross-border
transactions, said Richard Jones,
who chairs Decherts finance and
Richard Jones: Decherts
global footprint lures real estate practice.
lenders
With many new and old alter-
native lenders setting up BDCs, the firm has also been helping
many clients with those filings. Thomas Friedman, a partner in
the firms Boston office, has also worked with both newer and
established BDCs on structuring lending joint ventures.
Looking ahead, Jones said he finds himself spending a lot
of time with alternative lenders thinking about how to build risk
retention compliant structures within CLOs, as the December
deadline for compliance approaches.
EUROPE
Lender of the year
ICG
Highly commended:
Ares Management,
Alcentra
The overall lender of the year cat-
egory is usually a closely contested
category and this year proved no ex-
ception. Each of the three shortlisted
lenders deployed at least 1 billion,
with Ares Management on course to
lend 2 billion when it was shortlist-
ed in December. In the end, though,
the voters opted for ICG as overall
lender, confirming its crown as the
firm also prevailed in the senior and
junior lender of the year categories. ICG stays ahead of the
Speaking to PDI, Benoit Durteste, curve, says Benoit Durteste
38 Private Debt Investor | Annua l Re view 2015
Placement agent of the year
Credit Suisse
Highly commended:
First Avenue,
Park Hill Group
The Swiss banks Private Fund Group (PFG) has been well-
entrenched in raising money for private equity funds for many
years, though the firm is said to now be making more waves in
the private debt space too. Campbell MacColl oversees the ef-
fort in New York. The group is said to be staffing up and adding
resources on the private debt front.
The firms speciality has been in raising money for distressed
and special situations funds, which makes for an especially lucra-
tive business heading into 2016. Many debt managers are rais-
ing large distressed and special sits funds, and say the market
turmoil of late is leading to more opportunities for these types of
strategies, rather than traditional direct lending. The PFG group
raises money from investors globally, including public and pri-
vate pension funds, endowments, foundations, banks, insurance
companies and family offices.
who heads the firms mezzanine strategy and sits on both the
investment and executive committees, acknowledged that the
manager has, as one of the longest-lived incumbents in Europe,
benefitted from the wider rise in private debt and stayed ahead
of the curve by embracing new strategies and expanding into
new markets.
With around 1.4 billion deployed in 15 deals in 2015, the
senior strategy clipped along last year and closed on its second
fund at the 3 billion hard-cap. That 3 billion was matched by
Europe VI, its flagship mezzanine fund.
Senior lender of the year
ICG
Highly commended:
Ares Management,
Alcentra
Last year was stand-out for each of the firms on our shortlist for
different reasons. Alcentra proved that borrowers like what it does
 PDI ANNUAL AWARDS 2015

EUROPE

with several follow-on deals for exist-
ing clients, while Ares extended one
of the largest financing packages
solely arranged by a direct lender
when it did the 300 million Fintrax
financing. ICG, with Hayfin, was one
of the main arrangers behind a $400
million unitranche loan backing
Chiltern Internationals acquisition
of Theorem Clinical Research, with
Sankaty and Highbridge joining the
Max Mitchell: ICG is a tier one
player club deal.
With such strong contenders its
little wonder that just two votes separated ICG and Ares Manage-
ment with Alcentra a far from distant third.
ICG is a tier one player in a small group, says head of direct
lending, Max Mitchell. Cut the numbers any way, he adds deals
done, money deployed, size of loans and the theme is the rise
of the asset class.
The Chiltern deal, which did not involve a private equity spon-
sor points to the other big theme. We are seeing increasing in-
terest [from] and usage [of direct lenders by] non-private equity-
backed companies and I see that as the trend for the next three to
five years which is really exciting, says Mitchell.
Junior lender of the year
ICG
Highly commended:
Highbridge Principal Strategies,
GIC
The European syndicated mezzanine market has not recovered
since the financial crisis. Demand for subordinated debt has not
gone completely, though, it just means sourcing is more dif-
ficult. Highbridge is a well-respected subordinated lender and
Singaporean sovereign wealth fund GIC made some impres-
sive deals as it moved into private debt in Europe on its own
account. Ultimately, however, both firms were firmly beaten by
European mezz veteran ICG.
The firm closed its sixth mezzanine fund on 3 billion in July
and larger funds means larger deals, says Benoit Durteste, and
Fund V has three transactions of more than 200 million in the
portfolio. That vehicle is also one of the firms most conservative
mezz funds which is significantly lower than pre-crisis vehicles with
an average of just under five times leverage.
Returns on the vehicle so far are in the upper teens, says Durt-
este, adding that those numbers mean little for the wider Euro-
pean market but say a lot for the situations that ICG sources.
Lower mid-market lender of the year
Beechbrook
Highly commended:
Idinvest,
Proventus Capital Partners
Based on our vote, each of the short-
listed firms for lower mid-market
lender of the year is respected by
the private debt community. Once
again, however, UK-headquartered
Beechbrook stood out.
Looking at what the firm achieved
last year, its not hard to see why. The
firm invested 50 million in six deals
over the 12 months. On top of that,
it launched a new sponsorless lend-
Paul Shea: high quality
investment team ing strategy focused on UK small to
medium-sized enterprises (SMEs)
and reached a first close of more than half its target.
Asked how he managed it, founding partner Paul Shea says:
We researched the market opportunity, put together a high qual-
ity investment team then worked with existing and new investors
to structure a fund that worked for all parties.
Hes particularly proud that the firm managed to continue de-
ploying its second UK and Nordic-focused mezzanine fund while
getting the new strategy off the ground. As for 2016, the firm is
starting to deploy the UK SME Credit Fund and will appear again
to fundraise for its third mezz fund, as PDI reported last year.
Distressed debt investor of the year
LCM Partners
Highly commended:
Apollo Global Management,
Highbridge Principal Strategies
European non-performing loan (NPL) portfolio investment has
been flavour of the week for a couple of years, so its no surprise
to see this years distressed award goes to a player active in that
space. Of course, LCM Partners invests about as much in non-core
performing portfolios as it does in NPLs, but that, in this market, is
a strength that has attracted investors to the firm.

An n ua l Rev i ew 2015 | Private Debt Investor 39

 PDI ANNUAL AWARDS 2015
EUROPE
The firms mix of cut-price dis-
tressed and performing assets
keeps it delivering cash to investors
throughout the cycle. LCM has raised
650 million from two cornerstone in-
vestors for its first own-branded fund
which has a target of 1.5 billion.
Asked about the firms achieve-
ments in 2015, though, and chief
executive Paul Burdell points to the
Paul Burdell: closed several
deals the firm did last year. We
significant off-market deals closed several significant off-market
transactions deals that were to the
benefit of both sides which is always important.
The deals he is alluding to include acquisitions like the firms pur-
chase of a 320 million portfolio of more than 20,000 leasing assets
from Dutch lender ING. LCM deployed 608 million in around 15
portfolios and delivered unlevered net returns of 12.2 percent in
2015, Burdell adds.
CLO manager of the year
Blackstone/GSO Capital Partners
Highly commended:
Partners Group,
3i Debt Management
With Blackstone/GSO Loan Financing
(BGLF) in place, the firms listed CLO
originator vehicle that covers the is-
suer from both a risk retention point of
view and allows it to ramp new CLOs
to between 70-80 percent before they
price. And that ability to source most
of the assets in the vehicle before they
price is key to the firms CLO success,
says Alan Kerr, a senior managing di-
Alan Kerr: originator vehicle
rector in the firms debt funds group. gives GSO a competitive
edge
[Its] important because firstly,
when were out with a CLO and its being marketed by the arrang-
ers, the investors have a lot of transparency around the credits that
were invested in and secondly, having a more fully ramped portfo-
lio is important for the economics for the equity first loss.
The importance of the structure for the firms CLO business was
emphasised again last month when BGLF sought permission from
shareholders to invest in the US equivalent of Blackstones Europe-
an risk retention originator vehicle ahead of looming risk retention
40 Private Debt Investor | Annua l Re view 2015
rules in the US.
Blackstone issued three CLOs raising 1.24 billion in total last
year equal to almost 11 percent of 2015 European CLO issuance.
Infrastructure debt manager of the year
Macquarie Infrastructure Debt
Investment Solutions
Highly commended:
Allianz Global Investors,
AMP Capital
Macquaries infra debt platform MIDIS ran away with the infrastruc-
ture category for the second year running. Strong dealflow has
seen the platform make investments ranging from social housing
to airports and from a childrens hospital to the refinancing of a
restructured swap for a water utility.
The breadth of the platform is impressive on both the asset al-
location side and in terms of fundraising. Austrian insurer UNIQA
was set to allocate 1 billion to infra debt with the manager, as
revealed by PDI.
More publicly, the firm closed its UK inflation-linked debt fund
on 739 million ($1.07 billion; 952 million) in commitments
which along with managed accounts brought the platform to 2.5
billion in July.
It hasnt been a bad year for our runners-up, either. Allianz
Global Investors has invested about 120 million from its infra-
structure debt fund, which has a target of up to 500 million, while
AMP Capital is busy raising its third fund after deploying its $1.1
billion global fund.
Real estate debt manager of the year
AXA Real Estate
Highly commended:
ICG-Longbow,
DRC Capital
Garnering almost half of the votes in this category, AXA Real Estate
really stood out in 2015. It closed its ninth debt fund in June on
2.9 billion, beating its target by 400 million and has also raised
money from investors through separately managed accounts.
And while fundraising is important, doing deals is the key to
the strategy, says Isabelle Scemama, head of the funds group with-
in AXAs real assets division.
What matters for us is our ability to deploy. We always try to
match the capital from clients with our ability to deploy, she says.
Voted lower mid-market lender of the year, Europe.

Beechbrook funds provide tailored financing

solutions to European private equity buyouts, as
well as to non-private equity backed UK SMEs.

Unitranche loan to Mezzanine loan for the Unitranche loan and

part finance strategy acquisition of Alpha by equity for the acquisition
rollout Dunedin of Connection by
FirstCom Europe

February 2016 February 2016 November 2015

Mezzanine loan and Mezzanine loan to Unitranche loan and

equity for the buyout of finance the acquisition of equity to help finance
MCP Environmental by Amber Cars by Veezu the acquisition of
GIL Investments Glevum by ARP Capital

October 2015 August 2015 July 2015

Beechbrook Capital would like to thank the readers of

Private Debt Investor for their support.

Beechbrook Capital LLP 9 Orange Street London WC2H 7EA

T +44 (0)20 3551 5965 F +44 (0)20 7839 4736
E info@beechbrookcapital.com W www.beechbrookcapital.com

Authorised and regulated by the Financial Conduct Authority

 PDI ANNUAL AWARDS 2015
EUROPE
Over 2015, the insurers real estate debt platform deployed
close to 4.6 billion and depending on market conditions could
do the same this year, says Scemama.
The firm is also gradually moving into US mortgages as well as
Europe, she adds.
Deal of the year
IGM Resins HIG Whitehorse
& Deutsche Bank
Highly commended:
Fintrax Ares Management;
Fintyre GSO Capital Partners
Each of the deals shortlisted this year
stood out for one aspect or another. Fin-
trax, at 300 million, was one of the largest
ever deals underwritten by a private debt
manager, while Fintyre was one of GSOs
first deals in Italy and showed that the Eu-
ropean non-bank lending landscape con-
tinues to change and expand as regulators
embrace the wider choice of financing
Claire Harwood and banks start to co-operate with alterna-
tive lenders.
It was neither size nor jurisdiction that made IGM Resins stand
out, but structure. The borrower needed a combination of term
debt a 25 million unitranche and asset-backed financing, 12 the year, London Pension Fund Au-
million in secured lines. But with a complex corporate structure
and assets scattered across the globe, building a deal with a com-
plex series of intercreditor agreements took two lenders, five law
firms and debt advisor Altium to get over the line.
IGM Resins is a complex borrower a chemical manufacturer
and distributor spanning four continents. The key to the deal was
the provision of two different forms of capital, ABL and unitranche,
from two different capital providers rarely seen in Europe. It pro-
vided a capital solution for a complex business situation, says
HIGs Claire Harwood who worked on the facility.
Fundraising of the year
ICG
Highly commended:
BlueBay Asset Management,
GSO Capital Partners
Raising money quickly is something each of the shortlisted
firms proved their prowess in during 2015. BlueBay beat their
42 Private Debt Investor | Annua l Re view 2015
hard-cap with an almost 50 percent oversubscription, while
GSO raised just shy of 2 billion in equity for their first Euro-
pean senior debt fund in less than a year.
ICG, however, blew both out of the water. It closed two 3
billion funds on their hard-cap last year and raised 4.7 billion
of new third-party cash in the nine months to 31 December.
The firms fifth mezz vehicle was deployed more quickly
than anticipated, says head of the strategy, Benoit Durteste.
So much so that when the sixth fund reached its first close, the
fifth was 98 percent invested. Lucky then that Fund VI hit its
2.5 billion target on the first close after just five months on
the road, before a final close on the 3 billion hard-cap in July.
We have a number of LPs who are essentially new to the
asset class and its not very surprising that they focus their at-
tention on managers with a very long track record and no-one
has a longer one than us in Europe. And that track record is
very good, in particular that of our funds through the crisis,
says Durteste.
Investor of the year
London Pension Fund Authority
Highly commended:
Lancashire County Pension Fund,
UNIQA
PDIs first ever European investor of
thority (LPFA), decided to expand and
improve its approach to private debt
investment in 2015, says the pensions
investment manager for alternative as-
sets, Jonathan Ord.
We were in other commingled
funds before, but the allocation was
fairly minimal and given the attractive- Jonathan Ord, LPFAs
ness of the asset class for a pension investment manager for
alternative assets
fund, we wanted to increase our alloca-
tion, says Ord.
Credit opportunities are fluid and by the time the pension
goes through the process of identifying a manager, the ship has
often sailed, he says, explaining why the fund opted for a 100
million-150 million ($145 million-$217 million; 129 mil-
lion-193 million) flexible managed account with Apollo Glob-
al Management.
Setting up the account required a tender process which the
pension expanded to include 99 affiliated pensions under the
Local Government Pension Scheme, any of which can now
 At AXA Investment Managers Real Assets, we
have worked since 2005 to transform our strong
19-09259 - Photo: Zou xue / AXA IM

convictions into tangible performance for our

CRE debt clients.

Today we are the largest non-bank real estate

lender in Europe. Our 23bn loans programme,
investing in real estate and infrastructure, is built
on our clients trust.

Thats why were proud to have

been voted by you as Real Estate
Debt Manager of the Year Europe.

Real estate debt manager 1

AXA Investment Managers internal research, based on data at 30 June 2015.
of the year, Europe Based on capital commitments at 31 December 2015.

https://realassets.axa-im.com
@AXAIMRealAssets

This advertising does not constitute an offer or solicitation, nor is it the basis for any contract for the purchase or sale of any investment, security or product. It is not for use by
retail customers under any circumstances. AXA IM Real Assets disclaims any and all liability relating to a decision based on or for reliance on this advertising. Furthermore,
past performance is not necessarily representative of future results; the value of investments may fall as well as rise. 2015 AXA REIM SGP
 PDI ANNUAL AWARDS 2015
EUROPE
mandate one of the four shortlisted firms: Apollo, Ares Manage-
ment, Babson Capital and GSO Capital Partners.
And the pension isnt done at that. As the pensions of LGPS
consolidate LPFA is combining with fellow award contender
Lancashire the newly formed fund will make a significant al-
location to private debt, says Ord.
Fund financier of the year
HSBC
Highly commended:
Royal Bank of Scotland,
Lloyds
The wider growth in alternatives has made the managers within
the sector an attractive client base for banks that, on the credit
side at least, are also their competitors. PDI established this new
award to reflect the growing importance of financing for funds
be it through subscription lines, fund leverage or other ware-
housing and bridging facilities.
And for the banks who lend to funds, its a growing oppor-
tunity with important relationships that can be cultivated across
other units. More and more lenders are getting in on the act, say
market sources.
This years winner, HSBC, has a strong reputation and the
head of the banks asset-backed lending unit, Nigel Batley, says
that they target the largest 30 fund clients, seeking to become
relevant to them globally.
Theres a clear increase in demand for financing lines from
funds. Its now become much more of a strategic play where
they look to put some sort of semi-permanent bridging finance
into those funds to enable them to generate better levels of re-
turn within those funds. So the financing is being used much
more effectively and cleverly by the managers and I think the
banks have responded to that, says Batley.
Law firm of the year
Ashurst
Highly commended:
Reed Smith,
Proskauer
Ashurst made our law firm of the year shortlist on the basis of
both its fund formation practice and recommendations for the
strength of its work on the transaction side. Speaking to fund
formation partners Diala Minott, Jeremy Bell, Piers Warburton,
44 Private Debt Investor | Annua l Re view 2015
it becomes clear that alongside headline
alternative lending clients like ICG the
firm worked on two 3 billion funds for
the asset manager last year the team
turns its hand to a variety of debt fund
structures, including using the expertise
within the firms insurance practice to tai-
lor structures for insurers.
Were seeing a lot of interest in these
Diala Minott: seeing more funds from insurers. Theyre looking at
interest from insurers
fund structures quite closely to try to
work out what their regulatory capital charge will be and were
structuring those funds so that a look through approach to the
underlying assets can be taken, says Minott.
On the deal side, Ashurst was one of the five law firms that
worked on the financing for IGM Resins and PDIs deal of the
year for 2015.
Placement agent of the year
Arbour Partners
Highly commended:
Citigroup,
First Avenue
With a large range of external factors
pushing investors towards private
debt, it would be easy to assume that
the placement agents role is like that
of a doorman at a fancy hotel greet
clients as they arrive, flash a reassur-
ing smile that tells them they will have
a wonderful time before turning to the
next arrival.
But there are still a growing number James Newsome:
remaining insightful
of fancy hotels/debt managers com-
peting for that capital 427 debt vehi-
cles on the road, according to PDI Research & Analytics. Which is
why the placement agent category was hotly contested this year.
With four main credit management clients, our winner, Ar-
bour Partners, has specialised and does a lot of work around
educating investors about what exactly smaller managers like
Beechbrook do and why that can be compelling, even against
much larger names.
If you have too many clients or you work on too many asset
classes, youll find that youre not actually a very insightful per-
son, says Arbours James Newsome, explaining his philosophy.n
 PDI ANNUAL AWARDS 2015

ASIA-PACIFIC

Lender of the year Looking forward to 2016, he envisages even brighter pros-
SSG Capital Management pects for distressed lending in Asia on the back of public market
Highly commended: falls and volatility.
Adamas Asset Management,
KKR
Real estate debt fund manager
Last year belonged to SSG Capital Management, one of the fast- of the year
est growing private debt lenders in Asia with $2 billion in assets SSG Capital Management
under management. It surged past previous winners in this cat- Highly commended:
egory, Adamas Asset Management and KKR to be crowned the Fortress Investment Group,
lender of the year in Asia-Pacific. KKR
SSG Capital Management is an alternative asset manager
focusing on special situations in Asia including Japan. The firm SSG continued its clean
was founded in 2009 by senior members of the Lehman Broth- sweep of the PDI awards
ers Asia special situations group. It has raised four credit funds in the real estate category,
since 2009 and launched its first secured lending fund last year, despite facing strong com-
extending its strategy to include performing assets. petition from KKR and For-
Looking ahead, investors should tress.
take a global view of private debt Fortress had a strong
opportunities, says SSGs managing year, closing its third Japan Real estate: the best type of collateral
partner and chief investment officer, Opportunity Fund on $1.1
Edwin Wong. billion, while KKR continued
If you look at private debt global- to play actively in Indian real estate lending through its non-bank
ly, what Asia has seen is nothing when financial corporation in the sub-continent.
comparing to Europe or the US. It is In Asia, real estate is a broadly defined sector and SSG Capital
still tiny. Here we focus on bespoke Management invests in both developed markets, such as Australia,
lending with better security and and emerging markets including China and India.
tighter structures so the risk reward is A lot of the financing we do has real estate in it. This is be-
Edwin Wong: risk reward quite compelling, he says. cause it is usually the best type of collateral. Even if we lend money
is compelling
against a non-real estate acquisition, we might well ask him to put
a few properties up as collateral, says SSGs Edwin Wong, adding
Distressed debt investor of the year that real estate is a very important element of their business.
SSG Capital Management
Highly commended:
PAG, Infrastructure debt fund of the year
Shoreline Capital AMP Capital
Highly commended:
SSG Capital Managements dominance in the Asian distressed Westbourne Capital,
debt market continued in 2015, no doubt supported by its track IFM Investors
record in special situation funds.
The pan-Asian asset manager has raised three special situa- AMP Capital has pulled off a hat-trick, winning the infrastructure
tion funds to date. Special Situations Fund III closed at $915 mil- category for the third year running on the back of an unparalleled
lion in 2014 and returns are tracking above 20 percent without track record.
the use of leverage at fund level. The Sydney-headquartered firm lost no time finding opportuni-
Banks are capital constrained and have enough troubled assets ties for its $1.1 billion Infrastructure Debt Fund II, which closed in
on their books. They are looking to find homes for them. So thats November 2014 and is at the tail end of deployment just over
another good source for us. Usually when times are good, banks are half way through its four-year investment period.
less willing to let go of these assets, says SSGs Edwin Wong. This momentum prompted the firm to launch its third fund

An n ua l Rev i ew 2015 | Private Debt Investor 45

 PDI ANNUAL AWARDS 2015
ASIA-PACIFIC
in five years, targeting $2 billion.
Andrew Jones, AMP Capitals man-
aging director, infrastructure debt,
says it is anticipated that the 10-year
closed ended-vehicle will attract re-
peat investors from Asia many with
larger commitments and new in-
vestors from Europe and the US as it
completes a series of closes this year.
And opportunities are not expect-
ed to abate in 2016 in fact recent
Andrew Jones: more market jitters might lead to an increase,
room is opening up
according to Jones. Banks have been
pretty aggressively targeting this space
and so spreads were compressing particularly in the senior debt
space. One thing that is likely to occur as a result of this current
uncertainty is that banks will be a little bit more reluctant to offer
as much money and will charge more for it, potentially opening up
more room for institutional investors.
Deal of the year
Vistra Group Goldman Sachs and others
Highly commended:
GE leasing asset sale Sankaty Advisors
GE Australia & New Zealand consumer finance
unit sale Varde Partners, KKR, Deutsche Bank
Taking almost 50 percent of the vote, Baring Private Equity Asias
leveraged buyout of not one, but two corporate and trust ser-
vices firms was the standout deal of the year.
Goldman Sachs led the fully underwritten $750 million financ-
ing package underpinning the Vistra and Orangefield transac-
tions acting as lead-left arranger, bookrunner and syndication
agent across all tranches. Credit Suisse, Jefferies and DBS Bank
were the other three arrangers.
It was structured as a $515 million seven-year first lien loan
and $185 million eight-year second lien loan the biggest Asian
subordinated deal of the year plus a $50 million revolver.
A currency split appealed to investors in the US and Europe,
while margins of Libor plus 375bps and Libor plus 800bps for
the first and second loan respectively kept the home team happy.
We had a triple challenge: the leveraged products we came
up with were relatively unfamiliar in the Asian context; the un-
derlying industry was not well known to US investors; and the
markets were facing significant turbulence due to the Greek ref-
erendum, says Rahul Patkar, a managing director and head of
46 Private Debt Investor | Annua l Re view 2015
Asia ex-Japan leveraged finance at Goldman Sachs. Even this did
not hamper the deals successful syndication and reverse-flex.
The really encouraging news is that there is a willingness by
the global investing community to buy and support high-quality
products and issuers coming out of Asia, Patkar adds.
Fundraising of the year
SSG Capital Management
Highly commended:
Religare Credit Advisors,
Shoreline Capital
SSG has had another great fundraising year, raising capital for its
first secured lending fund which focuses on providing credit to
performing companies, a departure from its heritage as a primar-
ily special situations lender.
The fund is targeting gross returns of 15 percent and was
closed at $325 million in October 2015, exceeding its $300 mil-
lion target.
In contrast to the previous special situation funds which had a
more diverse investor background, the latest fund is believed to
have not been actively marketed rather raising the funds discretely
through predominantly Asia-based existing limited partners of the
manager.
Education, whether with investors or borrowers, is key for SSGs
success, SSGs Edwin Wong, told PDI. This is because investors
have always been in Asia for equity and therefore it is important to
persuade them that a good debt strategy can generate a decent
and safe return.
Overall, SSGs investors include big pension funds, state and
corporate pensions, sovereign wealth and family offices. The US is
the biggest source of capital for SSG, but still being kept below 40
percent to ensure even distribution.
This year is set to be quieter as the asset manager has no plans
to come back to the market until the current funds are deployed.
Fund financier of the year
Citigroup
Highly commended:
Deutsche Bank,
Silicon Valley Bank
As fund managers become more sophisticated in the lines of credit
used in Asia-Pacific investments, so the number of fund financiers
grows.

This was reflected in a strong
shortlist comprising US-based
firm Silicon Valley Bank, which
has made in-roads in the region,
and Deutsche Bank, which has a
strong Asia-Pacific franchise.
It was, however, Citigroup
which took first place growing
its subscription facility portfolio Citigroup got on their bike to win
by at least $2 billion in commit- clients
Asia
and build a reputation in
ments over the past two years.
We make sure we understand fund managers needs and
are bringing the best product to market for their funds given
their needs over the life of a vehicle, says the teams manag-
ing director, Terrance Philips.
In the last 12 months it has also closed several large syndi-
cations in Asia, with the largest being north of $700 million. In
addition, it has closed deals ranging from $40 million to $270
million without the need for partners.
I believe this is a reflection of the strength of Citis sub-
scription lending programme and our commitment to serv-
ing funds of all sizes and focus, adds Philips.
Law firm of the year
Kirkland & Ellis
Highly commended:
Ropes & Grey,
Ashurst
Kirkland & Ellis took the gong for law
firm of the year with its list of restruc-
turing deals featuring players from
all the leading dramas.
Chinese property company Kai-
sa, coal mining giant Bumi Resourc-
es, former Wall Street behemoth
Lehman Brothers, US-listed forestry
group Sino-Forest, industrial fishing
firm China Fishery The list goes on.
And the firm has A-list lawyers
Neil McDonald: involved in to match. It established the Asia re-
every big deal
structuring team in 2014 by poach-
ing former Hogan Lovells partners
Neil McDonald and Damien Coles, and in January added a
third former colleague, Kelly Naphtali.
PDI ANNUAL AWARDS 2015
ASIA-PACIFIC
She is hot on the heels of the November arrival of former
Linklaters partner David Irvine, who is listed as a go-to lever-
aged finance lawyer in Asia by Chambers & Partners.
With almost no exception we are involved in every big deal
in some meaningful way, says McDonald who leads Kirklands
Asia restructuring practice.
We are unique in that we cover Indonesia and China in-
depth and that is where the main situations are.
With volatility in China, the devaluing yuan and the US dol-
lar burden against the background of a general slowdown in
China, the services of Kirkland & Ellis as well as runners-up
Ashurst and Ropes & Grey are set to remain in demand.
Placement agent of the year
UBS
Highly commended:
First Avenue,
Atlantic Pacific Capital
UBSs eight-strong Asian fundraising
unit delivered the Swiss investment
bank to the top spot as placement
agent of the year.
It won recognition for commit-
ments garnered from Asia for global
vehicles. This included acting as
placement agent on two of the four
major fundraisings in the region
Baring Private Equity Asias $4 bil- Javad Movsoumov
lion close and Pacific Equity Partners
A$2.1 billion ($1.49 billion; 1.34 billion) raise.
Javad Movsoumov, executive director, UBS Private Funds
Group, says the group has built strong relationships with LPs in
Asia by offering a high quality product, being thoughtful about
LPs needs and leveraging UBSs network in the region. Not to
mention a lot of leg-work.
We actively track 150 institutional investors in Asia and pay
significant attention to the large global pools of capital such as
Greater China including Hong Kong and Taiwan, Korea, Singa-
pore and Australia, he says.
While UBSs relatively heavy resource gave the group the
edge over runners-up Atlantic Pacific Capital and First Avenue
this year, its lead may be narrowing. First Avenue is building its
Asia-Pacific reach by adding a Hong Kong office to its existing
Sydney presence in November, so there is all to play for over
the next 12 months. n
An n ua l Rev i ew 2015 | Private Debt Investor 47
 PDI ANNUAL AWARDS 2015

PDI ANNUAL WINNERS AWARDS 2015

GLOBAL Newcomer of the year
Pemberton
Highly commended: Neuberger Berman, AB Private Credit Investors

THE AMERICAS EUROPE ASIA-PACIFIC

Lender of the Year Lender of the year Lender of the year
Golub Capital ICG SSG Capital Management
Highly commended: GSO Capital Partners, Ares Capital Corporation Highly commended: Ares Management, Alcentra Highly commended: Adamas Asset Management, KKR

Senior lender of the year Senior lender of the year Distressed debt investor of the year
Golub Capital ICG SSG Capital Management
Highly commended: Ares Capital Corporation, Highly commended: Ares Management, Alcentra Highly commended: PAG, Shoreline Capital
TPG Specialty Lending
Junior lender of the year Real estate debt fund manager of the year
Junior lender of the year ICG SSG Capital Management
GSO Capital Partners Highly commended: Highbridge Principal Strategies, GIC Highly commended: Fortress Investment Group, KKR
Highly commended: Highbridge Principal Strategies,
Lower mid-market lender of the year Infrastructure debt fund of the year
Crescent Capital Group
Beechbrook AMP Capital
Lower mid-market lender of the year Highly commended: Idinvest, Proventus Capital Partners Highly commended: Westbourne Capital, IFM Investors
Monroe Capital
Distressed debt investor of the year Deal of the year
Highly commended: NXT Capital, NewStar Financial
LCM Partners Vistra Group - Goldman Sachs and others
BDC of the year Highly commended: Apollo Global Management, High commended: GE leasing asset sale / Sankaty Advisors,
Golub Capital BDC Highbridge Principal Strategies GE Australia & New Zealand consumer finance unit sale /
Highly commended: Goldman Sachs BDC, TPG Specialty Lending Varde Partners, KKR, Deutsche Bank
CLO manager of the year
Distressed Debt Investor of the year Blackstone / GSO Capital Partners Fundraising of the year
Oaktree Capital Management Highly commended: Partners Group, 3i Debt Management SSG Capital Management
Highly commended: Oak Hill Advisors, Fortress Investment Group Highly commended: Religare Credit Advisors,
Infrastructure debt manager of the year
Macquarie Infrastructure Debt Investment Solutions Shoreline Capital
CLO manager of the year
CIFC Highly commended: Allianz Global Investors, AMP Capital Fund financier of the year
Highly commended: The Carlyle Group, Onex Corporation Citigroup
Real estate debt manager of the year
AXA Real Estate Highly commended: Deutsche Bank, Silicon Valley Bank
Infrastructure debt manager of the year
Allianz Global Investors Highly commended: ICG-Longbow, DRC Capital Law firm of the year
Highly commended: AMP Capital, Hastings Funds Management Kirkland & Ellis
Deal of the year
IGM Resins HIG Whitehorse & Deutsche Bank Highly commended: Ropes & Grey, Ashurst
Real estate debt manager of the year
Blackstone Highly commended: Fintrax Ares Management, Placement agent of the year
Highly commended: Starwood Property Trust, Mesa West Capital Fintyre GSO Capital Partners UBS
Fundraising of the year Highly commended: First Avenue, Atlantic Pacific Capital
Deal of the year
Lightower Highbridge / Partners Group ICG
Highly commended: American Seafoods Ares Capital Corporation, Highly commended: BlueBay Asset Management,
Data Device Corporation Golub Capital GSO Capital Partners

Fundraising of the year Investor of the year

Oaktree Capital Management London Pension Fund Authority
Highly commended: GSO Capital Partners, Highly commended: Lancashire County Pension Fund, UNIQA
Fortress Investment Group
Fund financier of the year
Investor of the year HSBC
Pennsylvania Public School Employees Retirement Highly commended: Royal Bank of Scotland, Lloyds
System
Law firm of the year
Highly commended: New Jersey Division of Investments,
Ashurst
Orange County Employees Retirement System
Highly commended: Reed Smith, Proskauer
Fund financier of the year
Placement agent of the year
Wells Fargo
Arbour Partners
Highly commended: Goldman Sachs, SunTrust
Highly commended: Citigroup, First Avenue
Law firm of the year
Dechert
Highly commended: Latham & Watkins, Proskauer

Placement agent of the year

Credit Suisse
Highly commended: First Avenue, Park Hill Group

48 Private Debt Investor | Annua l Re view 2015

 DATA ROOM ANNUAL REVIEW

PRIVATE CREDIT FUNDRAISING 2015

Almost 140 private debt funds held ANNUAL CAPITAL RAISED BY PRIVATE DEBT FUNDS 2008-15
a final close last year, raising just shy 120 160
147
of the post-crisis fundraising peak, 132 139 140
126
according to data from PDI Research 100
120
105
& Analytics. The following pages

Number of funds closed

80 99 100
take a look back at some of the key

Capital raised ($bn)

82 80
numbers of 2015. 60
80

60

40 40

20
20
10
$109.80 $36.43 $42.86 $62.62 $81.01 $106.76 $84.90 $102.75
0 0
Source: PDI Research & Analytics 2008 2009 2010 2011 2012 2013 2014 2015

TOP 10 LARGEST DEBT FUNDS CLOSED IN 2015

Fund Name Fund Manager Target Size ($bn) Current Size ($bn) Fund Strategy Region Focus Fund Sector
Goldman Sachs Principal Subordinated / Mezzanine
GS Mezzanine Partners VI $6.00 $8.00 Global Corporate
Investment Area debt (origination)
Lone Star Real Estate Fund IV Lone Star Funds $5.00 $5.90 Distressed debt (acquisition) Global Real Estate
Starwood Distressed Opportunity Fund X Starwood Capital Group $4.50 $5.58 Distressed debt (acquisition) Global Real Estate
European Loan Programme Ares Management $3.30 $3.30 Senior debt (origination) Pan-Europe Corporate
ICG Europe Fund VI Intermediate Capital Group $2.75 $3.30 Unitranche (origination) Pan-Europe Corporate
ICG Senior Debt Partners II Intermediate Capital Group $1.10 $3.30 Senior debt (origination) Pan-Europe Corporate
AXA Investment Managers
CRE Senior 9 $2.75 $3.19 Senior debt (acquisition) Western Europe Real Estate
Real Assets
CVI Credit Value Fund III CarVal Investors $2.00 $3.00 Distressed debt (acquisition) Global Corporate
Park Square Capital Credit Opportuni- Park Square Capital $2.40 $2.40 Senior debt (acquisition) Pan-Europe Corporate
ties II
China Communication Construction Subordinated / Mezzanine
CCCC-NSSF Infrastructure Fund $2.38 $2.38 Asia-Pacific Infrastructure
Company debt (acquisition)
Source: PDI Research & Analytics

REGIONAL BREAKDOWN OF FUNDRAISING IN 2015

Funds closed Total amount raised Number of GPs which The largest fund to close

139 $102.75bn closed funds this year

116 $8bn
Western Europe $13.67bn

Central/Eastern Europe $0.08bn

North America
Pan Europe $17.86bn
$28.72bn

Global* Middle East / Africa $0.23bn

$36.48bn
Asia-Pacific $5.51bn
Latin America $0.21bn

* Global funds are those focusing on two or more separate regions

Source: PDI Research & Analytics

An n ua l Rev i ew 2015 | Private Debt Investor 49

 DATA ROOM

PRIVATE CREDIT FUNDRAISING 2015

BREAKDOWN BY STRATEGY OF FUNDS IN MARKET

There were 446 funds in market targeting 33% Subordinated / Mezzanine debt
an aggregate $234 billion at the end 1% Funds of Private Debt Funds

of December 2015. A third of the total 2% Venture debt

amount was earmarked for subordinated 2% Royalty financing
and mezzanine with a further 32 percent, 3% Unitranche
or $75.5 billion, raising for distressed Total amount
debt investments. targeted
$234.02bn

27% Senior debt 32% Distressed debt

Source: PDI Research & Analytics

TOP 10 LARGEST FUNDS IN MARKET

Fund Name Fund Manager Target Size ($bn) Fund Strategy Region Focus Fund Sector
Oaktree Opportunities Fund Xb Oaktree Capital Management $7.00 Distressed debt (acquisition) Global Corporate
Highbridge Principal Strategies - Mez- Subordinated / Mezzanine debt
Highbridge Principal Strategies $5.00 Global Corporate
zanine Partners III (origination)
Lone Star Real Estate Fund V Lone Star Funds $5.00 Distressed debt (acquisition) Global Real Estate
Subordinated / Mezzanine debt
Blackstone Real Estate Debt Strategies III The Blackstone Group $4.00 Global Real Estate
(acquisition)
Subordinated / Mezzanine debt
GSO Capital Opportunities Fund III The Blackstone Group $4.00 Global Corporate
(origination)
Mount Kellett Capital Partners III Mount Kellett Capital Partners $4.00 Distressed debt (acquisition) Global Corporate
Cerberus Institutional Partners VI Cerberus Capital Management $3.50 "Distressed debt (acquisition) Global Corporate

Oaktree Mezzanine Fund IV Oaktree Capital Management $3.50 Subordinated / Mezzanine debt North America Corporate
(origination)
Sankaty Credit Opportunities VI Bain Capital $3.50 Distressed debt (acquisition) Global Corporate
GSO European Senior Debt Fund The Blackstone Group $3.30 Senior debt (origination) Western Europe Corporate
Source: PDI Research & Analytics

INFRASTRUCTURE FOCUS
INFRASTRUCTURE DEBT HAS TREBLED SINCE 2012
Fundraising levels within the private
5.0
infrastructure debt fund market have
more than trebled between 2012 and 4.5

2015, from $1.34 billion to $4.35 billion. 4.0

China Communication Construction 3.5
Capital raised ($bn)

Companys $2.38 billion fund, which held 3.0

a final close in November 2015, is the
2.5
largest infrastructure debt vehicle since
2.0
the financial crisis.
1.5

1.0

0.5 $1.34 $2.67 $2.74 $4.35

0.0
2012 2013 2014 2015
Source: PDI Research & Analytics

50 Private Debt Investor | Annua l Re view 2015

 DATA ROOM

INFRASTRUCTURE CAPITAL RAISED COMPARED WITH TARGET

In terms of the difference between capital
actually raised and the total targeted by 150
infrastructure debt managers, 2014 was 108.22
100 83.00
the most successful year. At the end of
2015, this figure stood at $83 million, just 50

missing the 2014 peak of $108.22 million 0

but a vast improvement on the negative 2012 2013 2014 2015

Difference ($m)
-50
differences recorded in 2012 and 2013.
-100 -95.80
-150

-200

-250
-265.50
-300

Source: PDI Research & Analytics

REGIONAL BREAKDOWN OF INFRA FUNDRAISING IN 2015

There were 30 infrastructure debt funds

in market targeting $22.77 billion, as Global
of January 2016. The vast majority of 40% Europe
infrastrucrture debt managers have a
global mandate with 40 percent of the 25% Asia-Pacific
capital targeted earmarked for global
strategies (defined as targeting two or 23%
more regions). The largest infrastructure North
debt fund in market is Blackstones America
GSO Energy Select Opportunities 6%
Fund, launched in January 2015 with a Middle east

$3 billion target. Global Infrastructure 4%

Latin
Partners and AMP Capital are seeking America
to raise $2.5 billion and $2 billion 2%
respectively for global subordinated
infra debt. IL&FS Investment Managers
$2 billion fund will target senior debt Source: PDI Research & Analytics

opportunities across India.

FIVE LARGEST INFRA DEBT FUNDS IN MARKET

Fund Name Fund Manager Head Office Target Size ($bn) Fund Strategy Region Focus
GSO Energy Select Opportunities Fund The Blackstone Group United States $3.00 Distressed debt (acquisition) Global
Global Infrastructure Partners Capital Global Infrastructure Partners United States $2.50 Subordinated / Mezzanine debt Global
Solutions Fund (origination)
AMP Capital Infrastructure Debt Fund III AMP Capital Australia $2.00 Subordinated / Mezzanine debt Global
(origination)
IL&FS Infrastructure Debt Fund IL&FS Investment Managers Ltd India $2.00 Senior debt (acquisition) Asia-Pacific
Legg Mason Infrastructure Debt Fund Western Asset Management United States $1.52 Subordinated / Mezzanine debt Global
(acquisition)

Source: PDI Research & Analytics

An n ua l Rev i ew 2015 | Private Debt Investor 51

 COMMENT
THE LAST WORD ON THE YEAR
JANUARY
There is a major change and shift among the
management team that this private debt alter-
native is now a real mainstream solution.
Ccile Mayer-Levi, co-head of private
debt at Tikehau Investment Management,
explains the evolution of the private debt
sector.
FEBRUARY
Its largely going to be middle-market cor-
porates: good companies with bad capital
structures, where their traditional lending
institutions are busy elsewhere and we can
step in on the private credit front.
Scott Nuttall, KKRs head of global
capital and asset management, describes the
borrowers the firms new European direct
lending fund will seek.
I think well have a very eventful 2015. A lot of
companies are cutting their capex and are pretty
restricted on what they can do. They need our
capital and other long-term investors are gearing
up to address those needs.
Dwight Scott, head of GSO Capital
Partners energy practice, on opportunities
in the sector.
APRIL
It is my belief that in a crisis environment,
non-bank lenders will not continue rolling over
loans or extending new credit except at exorbitant
prices that take advantage of the crisis situation.
JPMorgan chief executive Jamie Dimon
postulates that alternative lenders will not
lend during the next financial crisis in a
thought experiment published in his annual
letter to shareholders.
Diverse ecosystems are much more resilient
than uniform ecosystems. A financial system
that is more diverse will be a financial system
that is more stable.
Larry Summers, former US Treasury
Secretary and an investor in Lending Club,
speaking at Lendlt.
52 Private Debt Investor | Annua l Re view 2015
MAY
The clear message behind a debt fund is that
they would be very comfortable accelerating
enforcing against a property in the event of
a default, as they have little reputational risk
compared to the traditional banking market.
RBSs Jason Presence, speaking at the
Loan Market Association Real Estate Con-
ference, argues that some non-bank lenders
are, in stressed scenarios, effectively loan-
to-own investors.
JUNE
Credit: FrangiscoDer
As all of you are fully aware, we are at the centre
of a storm, of a whirlpool, but we live near the
sea so we are not scared of storms. We are ready
to go to new seas to reach new safe ports.
Alexis Tsipras, prime minister of
Greece (pictured), during a speech deliv-
ered in Russia, amid crunch time talks with
creditors.
AUGUST
China is being very active in working toward
solutions for their growing pool of non-
performing loans. One of those solutions is
transferring the bad debt into the market,
so that bank balance sheets are not saddled
with NPLs and banks can focus on their core
businesses of taking deposits and lending.
Benjamin Fanger, co-founder of
Shoreline Capital, on the growing NPL
problem in China.
Europe is in some ways the most difficult
market in terms of pricing for private equities
but for direct lending, we feel very good
We are finding the returns to be excellent.
Tony James, president of Blackstone,
prefers direct lending in Europe compared
with the US.
SEPTEMBER
In reality, its just been very challenging to
invest in private debt in the western world.
Mark Katz of Ontario Teachers Pen-
sion Plan says private debt is not delivering
the 7-8 percent net returns OTPP is seeking.
There are a lot of folks in the private debt
universe that would like to access retail/ultra-
high net worth investors.
Adam Rochlin, senior vice-president
and product director within Oppenheim-
ers taxable fixed income and alternative
strategies group.
NOVEMBER
Those familiar with our history and invest-
ment philosophy understand that it is not in
our nature to be public market equity activists.
We have reluctantly assumed this role with
respect to TICC as our industry is going through
an inflection point, and we believe that our eco-
system can only thrive in a culture that fosters
real value creation for shareholders.
Josh Easterly, chief executive of TPG
Specialty Lending, on his attempts to call
attention to poor management at BDCs
through a bid for TICC.
The world is much more about new credit crea-
tion now, and that is where we are finding the
most interesting opportunities.
Christopher Acito, chief executive
and chief investment officer at Gapstow.
DECEMBER
The markets are relentless and ruthless when
it comes to dealing with bad behaviour.
Angelo, Gordon & Co. president Larry
Schloss on why hedge funds with a liquid-
ity mis-match are struggling.
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