Investment behemoth BlackRock Inc. (NYSE: BLK) is acquiring Tennenbaum Capital Partners, a firm with about $9 billion of committed capital focused on direct lending and special situations for middle-market companies. BlackRock says its clients are increasingly drawn to private credit as a higher-yielding alternative to traditional fixed income. Private debt funds raised a record $115.4 billion globally in 2017, surpassing the previous record of $99.8 billion in 2008, according to Preqin, which defines private debt as non-listed debt issues that may take the form of bonds, notes or loans, and includes all non-bank lending.
“Investors seeking to generate incremental returns and portfolio diversification are increasingly turning to private credit where both expertise and platform scale can drive returns,” says BlackRock’s global co-head of credit Tim O’Hara. “This acquisition will enhance our ability to deliver clients private credit solutions that meet their investment objectives across a range of risks, liquidity and geographies.”
According to BlackRock, the deal will help advance its goal of providing clients with a diverse range of alternative investment products at a time when those clients are increasingly turning to private credit as a higher-yielding alternative to traditional fixed-income investments. BlackRock reports that a key element of the transaction is keeping TCP’s senior management team on board, including all five partners: Lee Landrum, Michael Leitner, Howard Levkowitz, Philip Tseng and Rajneesh Vig. More than 80 staffers from the firm will join BlackRock with the transaction.
Los Angeles-based TCP has invested about $22 billion in more than 560 companies since its start in 1999. When the deal closes, TCP is expected to remain as the investment adviser of TCP Capital Corp. (NASDAQ: TCPC), a business development company, and become a wholly-owned subsidiary of BlackRock. BlackRock manages $6.317 trillion. The transaction is expected to close in the third quarter, and terms of the deal were not disclosed.
The TCP acquisition accelerates BlackRock’s growth plans, and TCP is “the perfect complement” to BlackRock’s existing credit business, says BlackRock global co-head of credit James Keenan. “We are focused on building a private credit business that seizes on long-term secular trends to deliver for clients the best results across risk spectrums and market cycles,” he says.
Howard Levkowitz, a managing partner of TCP and CEO of TCP Capital Corp., says the deal helps the firm “continue to employ the successful strategy we pioneered nearly two decades ago.”
“Our combination with BlackRock will provide TCPC with increased resources, scale and market access to continue to build on our long track record in middle-market performing credit and to enhance long-term value for our clients and shareholders,” Levkowitz says.
David Blumer, global head of BlackRock Alternative Investors, says the acquisition is “the next step in BlackRock’s efforts to expand its capabilities and impact of its alternatives business globally.”
“We are focused on delivering a range of products and innovative solutions for clients in need of new sources of return and new ways to manage portfolio allocation and risk,” Blumer says.
In recent years, private equity firms, such as the Riverside Co., have increasingly expanded into middle-market lending, with several making acquisitions. Ares Capital Corp. (Nasdaq: ARCC) bought American Capital; Investcorp purchased the debt management business of investment company 3i Group plc for $271 million; and Encina Capital Partners partnered with Oaktree Capital Management (NYSE: OAK) to launch an asset-based lender.