Key Takeaways
- • Private credit managers including Ares Management, Barings, BC Partners and Churchill Asset Management have reportedly examined acquisitions of troubled publicly traded business development companies (BDCs), according to Bloomberg, though talks remain at an early stage and may not result in deals.
- • The private credit market, valued at roughly $1.8tn, is under mounting pressure, with record investor withdrawals from non-traded funds and share-price declines in listed vehicles.
- • Several listed BDCs, including BlackRock's TCP Capital, WhiteHorse Finance and Investcorp Credit Management BDC, have said they are reviewing strategic options that could include a sale; Apollo's MidCap Financial Investment has also explored options.
- • BDCs trading below net asset value face constrained access to new equity, limiting their growth and leaving managers with fewer options to improve returns.
- • Potential transactions could include mergers, acquisitions of fund management contracts, or purchases of portfolio assets, with asset sales possibly used to move holdings into affiliated vehicles or return capital to shareholders.
Summary
Private credit managers are weighing sales of publicly traded business development companies (BDCs), a development that could give rivals an opportunity to expand their assets under management, according to Bloomberg. The report, citing unnamed people familiar with the matter, said Ares Management, Barings, BC Partners and Churchill Asset Management have examined potential deals involving troubled funds in recent months. Bloomberg stressed that the discussions remain at an early stage and may not lead to transactions.
The activity follows a difficult period for the roughly $1.8tn private credit market. Investors have withdrawn record sums from non-traded funds, while listed vehicles have seen share prices fall. Several publicly traded BDCs, including BlackRock's TCP Capital, WhiteHorse Finance and Investcorp Credit Management BDC, have said they are reviewing strategic options that could include a sale. Apollo Global Management's MidCap Financial Investment has also explored options for its portfolio, according to people familiar with the matter.
BDCs have traditionally appealed to private credit managers for their comparatively favourable fee structures and access to permanent capital. Deteriorating performance and limited growth prospects, however, have altered that calculation for some firms. When a listed BDC trades below its net asset value, it can struggle to raise new equity, restricting its capacity to expand. Combined with weaker direct lending activity, this can leave managers with underperforming portfolios and fewer avenues for improving returns.
Potential transactions could take several forms, including mergers, the acquisition of a fund management contract, or purchases of portfolio assets. Asset sales could allow a manager to transfer remaining investments into an affiliated vehicle or return capital to shareholders.
The activity follows a difficult period for the roughly $1.8tn private credit market. Investors have withdrawn record sums from non-traded funds, while listed vehicles have seen share prices fall. Several publicly traded BDCs, including BlackRock's TCP Capital, WhiteHorse Finance and Investcorp Credit Management BDC, have said they are reviewing strategic options that could include a sale. Apollo Global Management's MidCap Financial Investment has also explored options for its portfolio, according to people familiar with the matter.
BDCs have traditionally appealed to private credit managers for their comparatively favourable fee structures and access to permanent capital. Deteriorating performance and limited growth prospects, however, have altered that calculation for some firms. When a listed BDC trades below its net asset value, it can struggle to raise new equity, restricting its capacity to expand. Combined with weaker direct lending activity, this can leave managers with underperforming portfolios and fewer avenues for improving returns.
Potential transactions could take several forms, including mergers, the acquisition of a fund management contract, or purchases of portfolio assets. Asset sales could allow a manager to transfer remaining investments into an affiliated vehicle or return capital to shareholders.
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