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Raising the Stakes

Madison Capital Funding recent partnership with Apollo Investment Corp. underscores the trend toward larger hold sizes in middle-market lending

Madison Capital Funding LLC's recent partnership with Apollo Investment Corp. underscores the trend toward larger hold sizes in middle-market lending. In the deal, announced April 4, Apollo is the anchor equity investor in a loan vehicle managed by an affiliate of Madison, a subsidiary of New York Life Investments. The vehicle has purchased from Madison an existing pool of senior secured loans to middle-market companies in the U.S., with approximately $250 million of combined face value. For Apollo, the arrangement enables the firm to gain access to middle-market senior cash-flow loans.

For Madison, it "allows us to take up our hold sizes to compete with GE Capital and other folks for agencies," says Chris Williams, senior managing director. Prior to the arrangement, Madison's largest hold size was $45 million. Now the Chicago middle-market loan originator can take larger hold sizes.

"In a typical club deal with a $100 million facility, if you have a smaller hold size, you're likely to become a co-lead or a participant," explains Williams. "It's the larger hold size that usually determines who the agent is on the transaction. It's compelling to a sponsor when you come to the table with a large hold size."

The arrangement with Apollo is not the first for Madison, which penned a similar $225 million senior loan vehicle with OFS Capital in 2010. More partnerships may be ahead. "Madison Capital is actively pursuing third-party asset management arrangements as part of growing the business," says Williams.

For more on lending trends in the middle market, check out the contributing editor Danielle Fugazy's feature in the May issue of Mergers & Acquisitions. Also, watch editor in chief Mary Kathleen Flynn's sit-down interview with Madison Capital's Trevor Clark.


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