With the new year comes predictions and forecasts for the year ahead. On the topic of lending, Churchill Asset Management see resiliency and are positioning themselves for growth in junior credit.

Volatility and limited availability of credit in the public markets has increased investment activity for scaled private debt managers, says Jason Strife, senior managing director and head of junior capital and private equity solutions at Churchill.

“As interest rates rise, many private equity sponsors are reevaluating how they are structuring transactions to ensure optimal capital structures that will support their value creation initiatives,” Strife says.

“Many sponsors that previously relied primarily on first lien or unitranche financing solutions are now becoming more creative, utilizing more junior debt to counter the rising interest rate environment and macroeconomic conditions. As result, we expect junior capital to be one of our more active strategies as we enter 2023,” he says.

Churchill closed its Churchill Junior Capital Opportunities Fund II with $737 million of limited partner commitments. The fund is intended on lending to and investing in junior debt investments including second-lien term loans, subordinated notes, and PIK (payment-in-kind) notes to private equity-backed middle-market firms. The fund exceeded both its target of $500 million and doubled its predecessor fund of $300 million.

“Over the last decade, we have funded over $5 billion in nearly 200 junior capital transactions, focusing on non-cyclical, performing businesses backed by leading private equity firms,” Strife says.

History shows that funds invested during or in the immediate aftermath of recessionary periods have been among the best performing vintages on a historical basis, he says. In today’s uncertain macroeconomic environment, Strife is expecting attractive opportunities across the firm’s private debt platform.

Where do you see trends going in the lending market? Let me know at [email protected]

Cole Lipsky