Capital Dynamics last month launched a dedicated private credit asset management business, tapping two Credit Suisse veterans to head up the group. Jens Ernberg and Thomas Hall will co-lead the new private credit business, based out of the New York office.
Ernberg and Hall each bring close to 20 years of industry experience in syndicated and private credit. Prior to joining Capital Dynamics, they worked together for 10 years at Credit Suisse, where they started the middle market direct lending business. At Credit Suisse, they originated over $2 billion in private debt across more than 50 transactions, according to Capital Dynamics.
Now leading Capital Dynamics’ Private Credit Asset Management business, they plan to originate and invest in private debt transactions for middle market companies owned or controlled by private equity sponsors. Capital Dynamics has relationships with over 500 sponsors.
Specifically, Ernberg and Hall intend to “source senior secured loans, focusing on first-lien, unitranche, and second-lien facilities,” according to Hall. While the private credit business will “have the flexibility to consider mezzanine and equity co-investment opportunities, the focus is on senior secured floating rate debt.” They are targeting “lower middle market companies with EBITDA ranging from $7.5 million, on the lower end, to $50 million.”
The target fund size will be around $500 million, according to sources.
The lower middle market space has been extremely competitive in recent years due to record levels of capital raised for the asset class, resulting in increased amounts of capital chasing relatively few deals. In today’s issuer friendly market, covenant-lite structures prevalent in the broadly syndicated and upper middle markets have been making their way into the traditional and lower middle markets, posing an interesting situation for the direct lending space.
“Cov-lite structures have not gotten into transactions for companies with EBITDA in the teens,” Ernberg said. “Around the $25 million EBITDA business—you are seeing cov-lite structures go there, even though a direct lender may win the transaction versus an arranger agent that is seeking to syndicate the facility. … Most lenders seem to be holding a hard line on meaningful covenants for businesses under the $25 million in EBITDA range.”
Despite the competitive industry, Ernberg and Hall posit that what differentiates their private credit business is “the close relationships with private equity general partners and the scale of the platform with $28 billion of assets under management or advisement.” — Shivan Bhavnani
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