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Private credit’s largest deal takes shape
Private credit funds could cut their biggest cheque in history in the coming days, cementing their status as the new rainmakers on Wall Street.
Apollo, Ares, Blackstone, HPS Investment Partners and KKR are among the investment groups finalising a $5.5bn direct loan to Carlyle, funding its purchase of a 50 per cent stake in healthcare analytics company Cotiviti, sources tell DD.
The sheer size of the direct loan underscores the growing power of private credit providers in the wake of the global financial crisis, which ushered in a new era of tougher capital requirements for banks that made it harder for them to fund risky takeovers.
The trend has only accelerated in recent months after gyrating bond markets left banks struggling to offload debt they provided to fund big takeovers, including Elon Musk’s buyout of Twitter.
“No longer is the large deal just the provenance of the banks,” Kipp deVeer, head of credit at Ares, told DD’s Eric Platt.
The financing package for Cotiviti, which is to be accompanied by a $1bn preferred stock investment, is one of several large private loans being discussed, sources across the industry said. The size of the loan would be almost unimaginable a few years ago, when private credit loans of $1bn to $2bn were seen as mammoth.
At JPMorgan Chase’s flagship conference in Miami this week — where thousands of investors, traders, bankers and lawyers across the leveraged finance industry were gathered — it was clear private credit was effectively the only game in town.
Banks have been powerless to prevent the loss of the lucrative business to private credit rivals because the high-yield bond and leveraged loan markets have been all but closed to new leveraged buyouts.
Lenders including Bank of America and Barclays have been forced to hold on to loans made to fund large private equity takeovers, including the Twitter deal and the buyout of Citrix, leaving them nursing big losses.
“2022 really stopped capital markets,” Alex Popov, head of illiquid credit at Carlyle, said. “In terms of dislocation, this was as pronounced as it gets, where underwriters for any new transactions were essentially out of business.”
The question for big sponsors is who they will want to finance their deals with when credit markets reopen.
Banks vow to finance leveraged buyouts again and that some gains from private lenders are cyclical, not permanent. The market continues to deepen, however. (Several large institutions are actively raising new funds dedicated to private loans).
A key feature of the private lending model will also face a big test. While banks originate and distribute debt, private lenders own the loans. But many haven’t managed portfolios during a downturn where benchmark rates were 5 per cent-plus.
How one hedge fund made $1.3bn on vaping
When e-cigarette maker Njoy filed for bankruptcy in 2016, some well- known faces in the investment and music world got burnt.
The company had previously received backing from the likes of superstar Bruno Mars — who also endorsed its products — and Silicon Valley investor Peter Thiel. But a mounting debt pile and low sales drove it to seek Chapter 11 protection.
Njoy emerged from the ashes in 2017 with a new majority owner, hedge fund manager Jason Mudrick. His eponymous investment firm took a 51 per cent stake in the company at a $40mn valuation. It would prove to be one of his most successful positions ever.
On Monday, NJOY announced it was being acquired by Altria, the maker of Marlboro cigarettes in the US, for $2.75bn. The company will receive another $500mn if two additional products are approved by the US Food and Drug Administration.
To put things into perspective: Mudrick invested about $145mn in total in Nnjoy through debt and equity, according to people familiar with the matter.
It currently owns a 40 per cent stake in the group (having sold some of it down earlier) so the return for its $75mn equity investment will be $1.26bn if the two products are approved.
For Altria, it’s a second bite at the apple. The tobacco group watched its $12.8bn investment in Juul Labs go up in smoke after the e-cigarette company, which for years dominated the market, was blamed for fuelling a teenage “vaping epidemic” and the FDA banned its products.
As for Mars, who famously lit up a cigarette while accepting an award at the Grammys, it looks like he’s given up on vaping altogether.
The German fintech that keeps bleeding executives
In an interview with the FT last year, N26 co-founder and co-chief executive Max Tayenthal expressed regrets about missing out on crypto. “In hindsight, it might have been a smart idea,” he said.
Current and former colleagues of Tayenthal and his co-captain Valentin Stalf have raised their own thoughts about what should’ve been done differently.
Fresh off the resignation of the company’s chief risk officer Thomas Grosse this week — the third senior executive to depart in less than a year — an internal memo has surfaced from last year in which N26’s six most senior employees accuse the chief executive duo of establishing a “culture of fear”, the FT’s Olaf Storbeck reports.
The blistering critique comes as the Berlin-based online bank, which counts Silicon Valley billionaire Peter Thiel and Hong Kong tycoon Li Ka-shing among its backers, has come under increasing restrictions from Germany’s financial regulator.
The company overhauled its governance last November, adding a supervisory board to oversee what remains of the C-suite. N26 also stressed to the FT that it has made “significant investments into governance and leadership” over the past 18 months.
But the problems described in the memo still linger, according to people familiar with internal discussions at the company.
Three of the executives behind the internal “discussion document” are now gone: Grosse, chief financial officer Jan Kemper and former interim head of HR Eva Glanzer.
Tayenthal and Stalf’s critics have claimed they have a tendency to “shoot the messenger” if decisions taken turned out to be wrong.
With just three of the memo’s authors remaining at the company (including chief growth officer Alex Weber, who intends to leave at the end of this year, according to people familiar with the matter), N26 must salvage the messengers it still has.
Shearman & Sterling has nominated its global managing partner Adam Hakki to succeed David Beveridge as senior partner, pending a formal election later this year. It comes days after the firm abandoned merger talks with Hogan Lovells.
Separately, Garreth Wong, an M&A-focused partner at Shearman & Sterling in London, is leaving to join rival Paul Hastings.
Goldman Sachs managing directors Sandy Bernhardt and Brant Duber, who worked in the equities division alongside newly retired veteran Joe Montesano, have also left in recent weeks, as first reported by efinancialcareers and confirmed by DD.
HarbourVest Partners has made 21 promotions across the private equity firm.
Blurred lines Singaporean MPs often take up second jobs in the private sector. But controversy over a politician’s appointment to a top role at “superapp” Grab has raised potential conflicts of interest, the FT writes.
Betting on LBOs German banks are taking on Wall Street as an unexpected source of private equity funding, Bloomberg reports. What could possibly go wrong?
And one smart watch: This FT film explores the million-dollar question — how did so many people fall for the legend of Sam Bankman-Fried?
US authorities sue to block $3.8bn JetBlue-Spirit airline deal (FT)
Apollo’s fourth takeover offer ‘continues to undervalue’ Wood Group (FT)
Spain seeks right to stop Ferrovial from moving to the Netherlands (FT)
Hedge fund lawsuits pile up against LME a year on from nickel chaos (FT)
Senators introduce bipartisan bill paving way for possible US TikTok ban (FT)
PwC and KPMG fall behind in promoting women to run major audit work (FT)
LVMH: behemoth bets on beauty boss (Lex)
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