Fifth Street Management LLC had a blockbuster 2013. The lender doubled deal value, took a second business development company (BDC) public, bought another lender, started a venture lending operation and an aircraft leasing operation, and expanded and added new offices.
Greenwich, Conn.-based Fifth Street increased its deal value total in 2013 to $2 billion, up from $970 million the previous year. Despite the competitive lending environment that 2013 presented, Fifth Street's deal volume increased dramatically. In 2013, the company worked on about 110 deals - 45 more transactions than in 2012.
In July, Fifth Street took public Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR). "The second BDC is really focused on senior floating-rate assets," says CEO Len Tannenbaum (pictured). "It offered us a different flavor for the investors." The loans pay interest at rates that are periodically determined on the basis of a floating-base lending rate, which changes based on the market. Fifth Street took public its first BDC, Fifth Street Finance Corp. (Nasdaq: FSC), in 2008.
The new BDC raised about $100 million in the initial public offering. The group focuses on investing in senior secured loans, including first lien, unitranche and second lien debt. During the last quarter of 2013, Fifth Street Senior closed almost $98 million in investments, and increased net investment income by 79 percent.
In April, the lender closed a pair of back-to-back financing facilities for more than $100 million each, proving that it is among a small group of middle-market lenders that can hold unitranche positions of more than $100 million.
In May, Fifth Street paid $110 million to buy New York-based health care lender Healthcare Finance Group (HFG). The target, Fifth Street's first strategic portfolio acquisition, provides asset-based loans to health care companies. After being acquired by Fifth Street, the company closed a $475 million loan to Prime Healthcare, which the borrower planned to use partially for acquisition purposes.
"HFG's reputation in the last 15 years is just unbelievable, and we couldn't build that brand, reputation and team," Tannenbaum says. Thanks to the acquisition, the two lenders can work together on deals. If HFG takes the senior part of a loan, then Fifth Street may handle the second lien or stretch piece, says Tannenbaum.
"It provides a very competitive solution for our health care private equity sponsors," Tannenbaum says.
Moving into the venture capital space, Fifth Street launched Fifth Street Technology Partners, a venture lending operation that will allow the company access to businesses as they exit the venture lending stage and move into other stages, including private equity ownership. In addition to giving Fifth Street access to Silicon Valley, the business should increase the firm's expertise in the technology, Internet and information technology sectors.
Other milestones included: forming a company in the aircraft-leasing sector, First Star Aviation LLC; doubling the size of the Chicago office; and adding offices in Dallas and Palo Alto, Calif.
"In 2013, we really got the infrastructure and platforms in place to be a diversified asset manager in 2014," Tannenbaum says.