And as reported by Semafor this week, there is set to be more consolidation in the private credit space. Crestline, Waterfall, and MGG are all up for sale. MGG is a specialist in non-sponsored lending — think Encyclopedia Britannica and Burnley FC, and avoids sectors like healthcare and tech. Perfect for any firms that have a big sponsored-lending focus.

Castlelake, too, has been on the block. Again, not cash flow lending but an ABL specialist. Brookfield was in talks to buy majority ownership of the firm earlier this year, but it eventually settled on acquiring a minority stake. The real estate investment giant already has a presence in corporate direct lending through its ownership of Oaktree.

The fundamental truth is that it’s harder to scale a niche strategy of non-sponsored and ABL — the opportunities in these markets are a fraction of the number you see in the vanilla direct lending market. But it’s more important than ever to be a large fund. Last year, the top 15 fund managers in the space raised nearly 70% of all the capital available. Scale matters, especially as fundraising has been tough for smaller players.

So if you’re a bank, a hedge fund, real estate investor, or large private credit firm that has focused on corporate direct lending, it’s time to think how you can add to your overall offering — for borrowers always exploring unique financing options or institutional investors always on the hunt to diversify their investment holdings.

Home improvement

Can’t afford a new house as house prices continue to soar? Perhaps it’s time to make those improvements that you may have missed out on during the great enthusiasm for home improvement during the pandemic. Private credit firms are banking on many of us staying put.

This week, 9fin reported that Cerberus led a $600m facility supporting Littlejohn’s preferred equity investment in home improvement company Great Day Improvements. The proceeds helped to fund an acquisition of ELM Home & Building Solutions, an over $150m EBITDA company. The merging of companies grows an already large national direct-to-consumer firm that now provides everything from windows to gutter solutions.

Existing home sales are down over 5% year over year in the US, according to the National Association of Realtors. More and more of us will feel a greater urgency to clean the gutters or fix the garage door.

The reason housing is so expensive, or so real estate people will tell you, is simple supply and demand economics. Currently, there is not enough housing stock in areas in which people want to live. This means governments the world over, including all over the US, are concocting plans to incentivize building.

Private credit also has a plan to take advantage of that wave. Oak Hill Advisors’ $350m debt facility supporting AEA Investors’ acquisition of Nations Roof is a good example. More building means more business for commercial roofing, in both multifamily or mixed use retail.

The financing package priced at SOFR+525bps backs a commercial roofing company that likely has room to grow as development is fostered by governments. The company is currently active in over 20 states and, knowing that a PE firm is taking over, growth will be the highest priority.

Building blocks

The world seems pretty far removed from the cryptocurrency nadir last year when one of its poster children was found guilty of fraud and NFTs, an offshoot of the crypto-bro industry, were all but dead.

This year, the story is a little different. Bitcoin, the preeminent cryptocurrency, continues to hit record highs. The underlying technology — blockchain — that supports much of the industry just started hosting a large asset manager’s private credit fund.

This week Hamilton Lane, an investment manager with over $900bn in AUM, launched a private credit fund on the Solana blockchain. The firm’s Senior Credit Opportunities Fund is the first private credit vehicle to be launched on the platform.

Hamilton Lane’s fund originally launched in 2022 and currently has around $556m in AUM. The evergreen fund targets 10% yields.

Being on Solana allows more retail investors access to private credit. Instead of a minimum investment of $250,000, only $10,000 is needed, broadening the potential investor base.

Blockchain offers a different route to BDCs, which have been the most common way to access retail capital. Private credit firms continue to launch BDCs with Kennedy Lewis having launched one this month and multiple firms having taken theirs public earlier this year.

Hamilton Lane is building upon what some private credit firms have already attempted in incorporating these technologies. This feels like the biggest move so far in legitimizing its use.

This week in 9fin

Proskauer’s private credit default index jumps to 2.7% in Q2

Porter Airlines tries to land preferred equity injection

Carlyle weighs $3bn private loan to finance Baxter spin-out

Cerberus leads loan funding Littlejohn’s Great Day investment

Oak Hill Advisors backs $350m financing for Nations Roof

Master ConcessionAir growth strategy gets private credit backing

What’s in market

Porter Airlines — the company is looking to raise CA$250m in preferred equity to bolster its liquidity and pursue growth objectives

RXBenefits — the company is looking to refinance its existing debt with a roughly $900m private credit loan and possibly issue a dividend to shareholders

Wastequip — the company is looking to refinance its existing syndicated debt facilities in the private credit market

Priority Power — the energy management services company is on the auction block, marketed on $85m LTM EBITDA. Warburg Pincus has expressed interest

From around the web

Blackstone Bets on Growth in Private Credit Business Outside US (BBG)

Direct Lenders Should Prepare for Private Credit Restructuring (BBG Law)

High rates, scarce exits prompt inclusion of equity warrants (PitchBook)

Private Credit Funds Identify Latin America as the Next Frontier (BBG)

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