Middle-market lenders: Unitranche club deals now more common

Middle-market lenders said they’re seeing more club deals involving multiple parties in unitranche loans, which weave senior and subordinated debt into one instrument, as part of a changing dynamic in the space.

In recent years, many unitranche loans have come from senior secured loan programs (SSLPs), which often include two entities providing debt. One major duo in the SSLP space, Ares Capital Corp and Antares Capital, was broken up when General Electric Co sold Antares to Canada Pension Plan Investment Corp earlier this year.

While other SSLPs now take up the slack including Ares Capital Corp and AIG-backed Varagon, others have teamed up to provide club deals on unitranche debt, according to a panel at the PartnerConnect conference at Half Moon Bay.

David Brackett, founding partner and member of the investment committee at Antares Capital, said the lender has been pursuing “many strategies” for its unitranche business, including working with CPPIB, Ares and its new SLLP partner Varagon, as well as other third parties. Overall, Antares now has more flexibility to work on healthcare landing, as well as technology lending, under CPPIB, he said.

Kunal Soni, managing director at Carlyle Group, said the firm has been partnering with Madison Capital on unitranche deals, with other parties in the mix.

“We’re seeing things clubbed up more,’’ he said.

Soni said the lending market has been less receptive to some types of junior debt while middle market M&A activity has been less active this year. Nevertheless, middle market lenders and deal-makers haven’t yet recalibrated lending terms.

“We’re in a hyper-competitive environment,” he said. “It could be a big challenge for lenders because these aggressive lending deals may set a precedent.”

Lenders didn’t report any huge changes in the lending market when GE announced its sale of Antares earlier this year. If anything, some lenders said they ran into Antares more often on deals as if executives at the firm wanted to prove they were still in the game.

The comments came during a panel entitled, “How The Sale of GE Antares Changes Everything In the Debt Markets” moderated by Randy Schwimmer, founder and publisher of The Lead Left.