UPDATED -- The middle-market lending community is watching closely General Electric's (NYSE: GE) announced plan to sell GE Capital, the largest lender in the space and the winner of Mergers & Acquisitions’ 2014 M&A Mid-Market Award for Lender of the Year. Potential buyers reportedly eyeing GE Capital’s $74 billion U.S. commercial lending group include Apollo Global Management (NYSE: APO), Blackstone Group LP (NYSE: BX), Mitsubishi UFJ Financial Group Inc. (NYSE: MTU) and Wells Fargo & Co. (NYSE: WFC). But the commercial lending group is made up of several discrete businesses, some of which are likely to be sold separately. According to sources inside and outside GE, the unit expected to sell first is GE Sponsor Finance, which lends to private equity-backed companies and includes GE Antares, TMT, GE Equity and the Bank Loan Group.

SunTrust Banks Inc., Apollo and Ares Management LP are reportedly considering offers for the private equity lending unit, Bloomberg News reported April 24. 

The coveted GE Sponsor Finance group is up for sale on its own and is expected to be sold first and quickly to an unregulated entity. The business' $14 billion GE Antares unit is considered the most enticing element to other mid-market lenders, who expect it will sell quickly, according to multiple sources.

"There are more rumors every day as to who the buyers will be, but GE executives haven't gotten nearly that far yet, and it is all speculation," says a source inside GE, who is familiar with the deal. The buyer will likely be “an unregulated entity."

Regulatory hurdles, one of the reasons GE is selling the unit, will likely deter bank buyers, which is why the speculation surrounding the unit's sale focuses mainly on which non-bank business or businesses will make the deal or deals.

JP Morgan and Centerview Partners are leading the sale process. GE Capital’s commercial lending segment, the $74 billion business whose sale has been widely reported on, is made up of a bunch of companies: GE Corporate Finance, GE Sponsor Finance, GE Franchise Finance, GE Healthcare Financial Services, GE Equipment Finance and GE Commercial Distribution Finance.

GE Capital was named Mergers & Acquisitions M&A Mid-Market Lender of the Year for 2014 after increasing loans it made for private equity platform investments by more than 55 percent.

GE announced on April 10 that it was selling GE Capital to focus on its industrial businesses and to shed its Systematically Important Financial Intuition status, which subjects it to heightened regulatory oversight. GE will hold on to GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance because they are closely tied to the industrial side of the business. 

"The business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward," GE said in a press release.

Potential buyers may face similar challenges. GE Capital has a preferential cost of capital, which a non-bank buyer will not inherit. So the unit's cost of funds will increase – something that potential buyers are keeping in mind.

"A non-bank buyer is going to have to figure out how to replace GE's low cost of capital," says David Golub, president of mid-market lender Golub Capital, who has articulated acquisition interest in GE's Sponsor Finance unit. 

GE Capital's competitors say that the sale gives them the opportunity to boost their own market share. Lenders in the space aside from Golub include Madison Capital Funding LLC, NXT Capital, Monroe Capital and more. NXT and Madison declined to comment for this article.

"When the largest player in the market share goes through internal uncertainty, it's going to create an opportunity for others," says Ted Koenig, CEO of mid-market lender Monroe Capital.

David Brackett, the CEO of GE Antares, insists the business is still going strong: "Sponsors have awarded GE Antares three financing mandates for new platform investments in the first 10 days since GE's announcement."  

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