THL Enters BDC Waters
Absent a crippled legacy portfolio, the buyout firm hopes to defy the fate that other business development firms have seen this year.
June 10, 2009
Even as many business development firms have faced sizable losses throughout the past year, Thomas H. Lee Partners has embarked on a gutsy ascent into the BDC market.
In a form N-2 filing , the Boston-headquartered buyout firm made it known that it will no longer rely wholly on its “bear hug” buyout strategy. The firm’s new entity, THL Credit, Inc., will be regulated as a closed-end management investment company. It will make debt, equity and mezzanine investments, and expects to initially raise about $300 million of capital.
In the filing, THL projected that the new business development company would focus primarily on extending mezzanine loans to unsponsored middle-market companies. The firm said it “expect[s] the demand for leveraged buyouts to remain significantly reduced from prior years.”
James Hunt and Sam Tillinghast will lead the team as CEO and COO, respectively, with Gregory Hammer, Christopher Ochs and W. Hunter Stropp serving as principals. Hunt has served in a similar role with THL's affiliated investment advisory arm THL Credit Group, LP. Before that he co-founded and served as CEO of Bison Capital, and previously served as president of SunAmerica Corporate Finance, which was acquired by AIG. Tillinghast also came from AIG, where he headed the private placement group, and before that served at SunAmerica as well.
THL Credit will be competing against a host of similar companies that have seen massive portfolio losses this year. In May, Allied Capital reported that its losses had nearly tripled from $110.3 million a year ago, to $377.2 million. American Capital saw losses of $547 million in the same month, from a loss of $813 million in the previous year.
Of course other lenders have also suffered. CapitalSource reported a net loss of $104.3 million last month, compared to a net income of $6.5 million last year.
THL Credit, meanwhile, will be betting that it can capitalize on the giant hole in the credit market left its rivals' struggles. In the filing, the the company also mentioned that commercial bank consolidation has led to a lessened focus on the middle-market business, even as middle-market companies are looking for long-term capital for debt and equity capital.
Considering that the new entity is not crippled by a legacy portfolio, THL Credit could maintain a significant advantage over similar management companies.
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