Winners in Depth
Blue Sage Capital
LENDER OF THE YEAR
The combination of Madison's balance sheet and its increased hold size allows it to work on transactions with fewer other lenders
In a year during which many lenders performed well, Madison Capital Funding LLC took its business to a new level in 2012, expanding its managed-account offerings, increasing its hold size and attracting a valuable new partner in Apollo Investment Corp. (Nasdaq: AINV). The combination of Madison's balance sheet and its increased hold size allows it to work on transactions with fewer other lenders.
Several other middle-market lenders had great years in 2012, experiencing growth, expansion and recapitalization. GE Capital, the biggest middle-market lender, completed 275 deals worth $17.87 billion for a 20 percent increase over its 2011 transaction level. Fifth Street Finance Corp. (Nasdaq: FSC) closed $422 million in investments in the fourth quarter, with 41 new platform investments and $915 million in investments for the year. Ares Capital Corp. (Nasdaq: ARCC) closed about $3.2 billion in deals during the first nine months of 2012.
Madison started the new aspect of its third-party asset management business in April, when it closed the first of three third-party vehicles representing $785 million in managed accounts. The first two accounts, completed in connection with private equity firm Apollo, which closed in April and October, were each valued at $250 million. The third account, completed with Athene Annuity & Life Assurance Co., closed in December.
Madison's relationship with Apollo was years in the making, says Trevor Clark, the lender's chief executive.
Apollo saw the value benefits of the middle-market asset class, which has a risk-return profile that's more attractive than other asset classes, and approached Madison as well as a few other potential partners about gaining exposure to the middle market, according to Clark. Madison walked Apollo through a sample profile, and the two agreed they would be good partners.
"Madison's strong origination capabilities and credit track record were extremely attractive attributes to us," says James Zelter, Apollo's chief executive and director.
Madison Capital expects to continue developing third- party vehicles through 2013. It has three vehicles ready to close in early 2013.
Although many groups want to bring their capital into the middle market, Madison intends to be selective about who the firm chooses to partner with, Clark says. "The secret of the middle market has been exposed."
Madison's affiliation with its parent, New York Life Insurance Co., also helps it stand out from the pack and gives the company added stability, Clark says.
Additionally, Madison closed a record number of transactions in 2012, including 77 new platform investments and 46 add-on or refinancing transactions.
The company served as the agent on 74 percent of the deals it worked on, and agent or co-lead arranger on 92 percent of the transactions it closed in 2012. At the end of 2012, Madison had $5.9 billion in assets under management, a 57 percent increase to its end-of-year 2010 assets under management of $3.75 billion.
"We didn't do what others did," Clark says. "We could have gravitated towards broadly-syndicated land, but didn't. We stayed where we added unique value."