0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150 Thomson Reuters LPC Middle Market Loans Conference
The Middle Market Evolution Continues:
A View from Above
April 27, 2016
Cover page Heading
Font –Arial Narrow, Size-18pt, Bold, Black color
Cover page 1st Sub Heading
Font –Arial Narrow, Size-14pt, Bold, Before spacing
8pt , After spacing 0pt
Cover page 2nd Sub Heading
Font –Arial Narrow, Size-14pt, Unbold, Before
spacing 8pt, After spacing 0pt
Line Style
Line width – 5.6” , Weight: 1pt
Line Color – (RGB: 128, 128, 128)
Position – (H:4.17”, V:4”)
Date
Font – Arial Narrow, Size-12pt, Unbold
Date Format: mmmm, dd, 2016
Line Style
Line width – 5.6” , Weight: 1pt
Line Color – (RGB: 128, 128, 128)
Position – (H:4.17”, V:4”)
2
The Middle Market Evolution Continues: A View from Above
Moderator
Robyn E. Roof
Head of Loan Syndicate, Sales and Research
KeyBanc Capital Markets, Inc.
Panelists
Kevin F. Burke
Head of Loan Syndicate, Sales and Trading
Antares Capital
Walter Jackson
Head of Direct Lending Platform
Onex Credit
Eric Lloyd
Head of Global Private Finance
Babson Capital Management
Devon M. Russell
Alexandra Vidmar
KeyBanc Capital Markets
216-689-3323 / [email protected]
Contacts:
Robyn E. Roof
KeyBanc Capital Markets
212-476-7423 / [email protected]
Juan Gomez
KeyBanc Capital Markets
216-689-3234 / [email protected]
James Hussney
KeyBanc Capital Markets
216-689-3559 / [email protected]
3
0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150
Agenda
I. Middle Market: The Commercial
II. Middle Market: The Evolution
III. Middle Market: The Future
Section Heading
Font – Arial Narrow, Size: 16pt, Bold, black
Section Numbering – Roman Numerals, Arial
Narrow, Size: 14pt, Unbold, black
Numbering Indentation – Before text: 0.35”, Hanging
text: 0.35”
Spacing (Before: 8pt, After: 0pt)
Position (H:0.2”, V:0.76”)
Slide Title
Font –Arial Narrow, Size-18pt, Unbold
Appendix Heading
Font – Arial Narrow, Size: 14pt, Bold, black
Appendix Numbering – Alphabet Numbers, Arial
Narrow, Size: 14pt, Unbold, black
Numbering Indentation – Before text: 0.63”, Hanging
text: 0.29”
Spacing (Before: 8pt, After: 0pt)
0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150
I. Middle Market: The Commercial
Section Heading
Font –Arial Narrow, Size-18pt, Bold
Sub Section Heading
Font –Arial Narrow, Size-14pt, Unbold
Line Style
Line width – 5.62” , Weight: 1pt
Line Color – (RGB: 128, 128, 128)
Position: (H – 4.17”, V – 4”)
5
Middle Market: The Commercial
Sources: National Center for the Middle Market, 4Q15 Report; CIA World Fact Book
5th Largest Global Economy
Compelling Opportunity for the Middle Market
$4.3T (~33%) in Private Sector GDP
Small Business
<$10MM
Annual Revenue
~ 6MM
Businesses
35%
Employment
Middle Market
$10MM - <$1B
Annual Revenue
200,000
Businesses
34%
Employment
Big Business
>$1B
Annual Revenue
~ 2,000
Businesses
31%
Employment
6
Middle Market: The Commercial
Sources: Association for Corporate Growth, Access to Capital – How Small & Mid-size Businesses are Funding their Futures
(National Center for The Middle Market & Milken Institute)
PE backed companies (1995-2013)
Banks remain the predominant source of outside capital for business of all sizes
Banks are disrupted by newer nonbank lenders and other source of capital
Banks and nonbank capital sources collaborate
134%
31%
84%
27%
PE-backed Business All Businesses PE-backed Business All Businesses
Comparative Sales Data Comparative Jobs Data
7
Size of Market
Favorable Pricing
Capital Structure Seniority
Lower Risk Profile
More Conservative
Structures
Less Volatility / Increased Liquidity
"Skin in the Game"
Lower Defaults / Higher
Recoveries
Shorter Duration
Diverse Investor Base
MIDDLE MARKET
INCLUDES 200,000
BUSINESSES IN ALL
INDUSTRY SEGMENTS
AND GEOGRAPHIES
Middle Market: The Commercial
Sources: Antares Capital, The National Center for the Middle Market – 2014 Annual Report
0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150
II. Middle Market: The Evolution
Section Heading
Font –Arial Narrow, Size-18pt, Bold
Sub Section Heading
Font –Arial Narrow, Size-14pt, Unbold
Line Style
Line width – 5.62” , Weight: 1pt
Line Color – (RGB: 128, 128, 128)
Position: (H – 4.17”, V – 4”)
9
FinCo Insurance
Company
Private
Equity
Heller Financial
professionals leave to
start Antares (1996)
David L. Babson & Co.
traces back 75 years
Founded in 1984, and
went public in 1987
GE Antares acquires
Merrill Lynch Capital
(2008)
Babson acquires First
Union Institutional Debt
Management (2002)
Onex Credit was
acquired by Onex in
2007. Recently
expanding Direct
Lending Platform
Middle Market: The Evolution
Antares joins forces
with CPPIB (2015)
GE acquires Antares
(2005)
MassMutual acquires
Babson (1995)
ONCAP has raised 3
funds since 1999
Babson rebranded as
Babson Capital
Management (2004)
Onex Partners has
raised 4 large cap PE
funds
10
GE Capital Evolution
Private Equity Finance Unit
11
Middle Market: The Evolution LTM
Banks CLOs BDCs Direct Lending Platforms
Note: Each category organized top down, from newest to oldest
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
12
Jan-16
Huntington Bancshares to strengthen Midwest franchise with
financially and strategically accretive merger with FirstMerit
Corporation
Nov-15 M&T Bank completes acquisition of Hudson City after 3-Year delay
Nov-15 L.A.'s 'bank to the stars,' City National Bank, now under Canadian
ownership – RBC
Oct-15 KeyCorp to acquire First Niagara Financial Group
Aug-15 CIT Completes acquisition of OneWest Bank
Apr-16 Japan's SMBC Nikko sets up investment banking team in New York
Mar-16 SunTrust plans to hire as many as 200 in mid-market M&A push
Oct-15 Regions adds mid-market I-Bank BlackArch, as financial services
drive M&A
Aug-15 TPG joins Thain’s CIT to form special-situations lending venture
Middle Market: The Evolution - Banks
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
13
Feb-16 Golub prices $478MM CLO – L+ 233
Feb-16 NewStar prices $348MM CLO – L+ 230
Dec-15 Maranon prices debut $355MM CLO – L+ 210
Oct-15 Cerberus prices CRR $413MM CLO – L+ 205
Sep-15 Fifth Street prices $417MM CRR-compliant CLO – L+ 192
Aug-15 NewStar prices $398MM risk-retention compliant CLO – L+ 200
Jul-15 Golub prices $558MM CLO – L+ 180
Jul-15 BMO Asset Management prices $308MM CLO – L+ 195
Jun-15 Carlyle GSM prices debut $399MM middle-market CLO – L+ 185
May-15 Fifth Street prices CRR-compliant $309MM CLO – L+ 180
Apr-15 NXT Capital prices $409MM CLO – L+ 185
Middle Market: The Evolution – CLOs
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
14
Apr-16
Apr-15
Ares forms new middle market lending venture with Varagon
Ares Management fund acquires loan portfolio from First Capital
Apr-16 Tennenbaum Capital nets minority investment from CNO Financial
Mar-16
Nov-15
Aug-15
Monroe Capital launches specialty finance business for Fintech
Monroe Capital launches ABL unit; Moser, Price co-heads in Boston
Monroe Capital, Channel Partners launch JV for working capital loans
Jan-16 NewStar Business Credit launches unitranche loan initiative
Oct-15 Solar Capital adds Voya as partner on unitranche fund
Aug-15 BDCs Medley Capital, Sierra Income ink new financing for JVs
Jul-15 Capitala Finance, CION launch middle-market lending JV
Jun-15 Fifth Street Finance sells healthcare direct lender to rival MidCap
Middle Market: The Evolution – BDCs
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
15
Mar-16 Griffin-Benefit Street Partners-BDC says regulation, investment limit
behind new structure search
Feb-16 Full Circle evaluating company sale, blames challenging market
Feb-16
Nov-15
Prospect Capital stock drops 5% amid news of possible SEC probe
into valuations
Prospect Capital details portfolio, moving ahead with spin-off plan
Nov-15 American Capital unveils strategic review, including potential sale
Oct-15 BlackRock hires Zugay from Ares to head middle market investments
Jul-15 BDC Carey Credit Income Fund launches public capital raise
Jul-15 Audax files plans for non-traded middle market BDC
Middle Market: The Evolution – BDCs
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
16
TBA Apr-16 Young exits Och-Ziff to co-found new alternative asset manager
Apr-16 Goldman Sachs’ Walt Jackson to launch Onex direct lending platform
Feb-16 Stuart Aronson joins H.I.G. capital as head of U.S. direct lending
Feb-16 KKR's Lipschultz to Launch Private Debt Firm with Blackstone's
Ostrover
Jan-16 GSO, Rivington team up for middle market energy investments
Jan-16 Adams Street to pursue new middle market private credit strategy
Dec-15 Great Rock, Two Sigma launch middle market lending platform
Middle Market: The Evolution – Direct Lending Platforms
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
17
Nov-15 Canadian pension fund PSP launches U.S. private debt fund
Nov-15 DDJ Capital hires head of middle market loan origination
May-15 AllianceBernstein middle market direct lending platform nets $1.1B
Apr-15 B Riley Financial, KKR form middle market lending venture
Apr-15 TIAA-CREF launches new senior loan money management unit -
Churchill Asset Management
Apr-15 KKR steps up middle market direct lending with close of $1.34B fund
Middle Market: The Evolution – Direct Lending Platforms
Sources: SEC filings, Thomson Reuters’ LPC Loan Connector, Standard & Poor’s Leveraged Commentary & Data (“LCD”), Bloomberg & individual investor websites
18
Middle Market: The Evolution
New Credit Platform Formation
Addressable
Market
Capital
Base
Clients
Product
Human
Resources
• Banking regulation and BDC volatility
have created opportunity
• Barriers to entry are increasing
• Platform differentiation, product
breadth, and scale are increasingly
important
• Regulation
• Mark-to-Market / Other disclosures
• Conflict management
• Relative value
• Overhead investment amount and
pace
• Market timing
• Liquidity / Unlevered Yield
Relevance
• Scale, Stabile, Consistent,
Predictable, Flexible
• Advisory / Industry verticals
• Broad product / Service spectrum
• Appropriately skilled team
Independence / Diversity
• Sources of capital
• Financing opportunities
Market Dynamics Success Factors
Challenges
Sources: Devon Russell
0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150
III. Middle Market: The Future
Section Heading
Font –Arial Narrow, Size-18pt, Bold
Sub Section Heading
Font –Arial Narrow, Size-14pt, Unbold
Line Style
Line width – 5.62” , Weight: 1pt
Line Color – (RGB: 128, 128, 128)
Position: (H – 4.17”, V – 4”)
20
0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150
Middle Market: The Future
Bank’s share of middle-market sponsored private deal submissions dips in 4Q15
Sources: Thomson Reuters LPC
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
Shar
e o
f d
eal
s su
bm
itte
d
Regional Banks Non-Banks
21
0
51
102
51
153
102
104
162
191
152
182
138
153
204
255
153
153
255
51
102
204
51
51
51
205
37
43
157
150
128
225
236
242
209
240
224
102
141
194
138
163
204
163
181
212
185
198
221
204
213
230
217
217
217
178
178
178
150
150
150
Middle Market: The Future
Leveraged lending guidance: Impact on / of non-banks lenders
Sources: Thomson Reuters LPC
U.S. LBO Bookrunner League Tables (Volume in $Billions)
0
2
4
6
8
10
12
CS
DB
Bar
clay
s
GS
JPM
MS
BA
ML
Jeffe
ries
UB
S A
G
GE
CC
RB
C
Nom
ura
BM
O
Citi
Mac
quar
ie
2014 League Tables
0
2
4
6
8
10
12
Bar
clay
s
Jeffe
ries
CS
DB
RB
C
MS
Nom
ura
BM
O
Citi
GS
BA
ML
Mac
quar
ie
Ant
ares
JPM
Mad
ison
Cap
ital
2015 League Tables