Antares Capital will expand its product offering in subordinated, or junior debt under new ownership by the Canada Pension Plan Investment Board (CPPIB).
Antares Capital expects to underwrite, and potentially hold, second-lien and mezzanine debt as a result of the new partnership, according to David Brackett and John Martin, who will lead the group under its new owner. Historically, GE Capital and GE Antares had almost focused entirely on senior secure loans.
After weeks of speculation over who would buy the business, GE today announced plans to sell Antares Capital to CPPIB as part of a $12 billion transaction. Speculation had focused on a non-bank lender as the buyer of pieces of the GE Capital assets up for sale, including of a company trying to enter middle market lending.
In buying the GE business, CPPIB makes a debut in the U.S. middle market business with a splash. GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.
Until now, CPPIB’s focus had been on larger deals. Its junior debt business included high-yield bonds and mezzanine debt. Since 2009, CPPIB’s credit investments have totaled $17 billion, through primary and secondary market purchases. CPPIB’s credit investments are managed by a team of 36 globally.
CPPIB will retain Antares’ team. Antares employs around 300, led by managing partners Brackett and Martin, who have led Antares since its formation. Antares will operate as an independent, stand-alone company.
Moreover, Antares will strengthen its unitranche loan product via the new partnership.
“CPPIB Credit Investments will stand ready to immediately invest follow-on capital into Antares post-closing to support origination of unitranche loans for its clients at scale, as we believe this is a differentiated product that will support Antares’ market leading position,” CPPIB said in a statement today.
Any impact on middle market lending overall as a result of GE Capital’s exit is likely to be minimal.
“There truly isn’t going to be any void. Whatever we’ve been able to provide in the past is what we’ll be able to provide in the future,” said Martin in an interview with LCD News.
The Antares purchase will open CPPIB’s credit investment portfolio to the U.S. middle market. GE Antares specializes in middle market lending to private-equity-backed transactions.
“They had been studying the market for some time and liked the risk-reward scenario. This gave them an opportunity to enter the market in a meaningful way, with scale,” said Brackett in the interview.
The geographic footprint of Antares will likely remain much as it is today, with its headquarters in Chicago, a significant presence in New York, and operations near Atlanta. Antares Capital will operate as an independent business, and retain the name.
The sale is expected to close in the third quarter.
The Senior Secured Loan Program (SSLP), so far not part of the sale, will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital. Without an agreement, the program may be wound down (see GE’s sale to CPPIB leaves fate uncertain for $9.6B SSLP partnership).
A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.
GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business and focus on its core industrial businesses. – Abby Latour
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