Park Square Capital, one of the biggest non-bank lenders to private equity in Europe, has raised a €1.2bn debt fund to take advantage of dislocations that have this year rocked financing for leveraged buyouts and led banks to step back from the market.
The fund, backed by investors such as pension and sovereign wealth funds, will invest in subordinated debt both attached to new buyouts and older deals trading in the market, Park Square said.
Risky junior slices of debt issued to finance buyouts were among the hardest hit by a sell-off in high-yield loan and bond markets at the start of this year, causing pain for banks left holding on to deals they had underwritten.
The market has reopened in recent weeks with private equity-backed deals such as the $4bn buyout of LeasePlan, a Dutch car lessor, which sold debt to public investors last month after being delayed because of the sell-off.
However, Robin Doumar, Park Square managing partner, said: "I don't think banks or [private equity] sponsors are taking anything for granted."
Banks are "under increasing pressure" to step back from underwriting large buyout loans, Mr Doumar said. "Their tolerance for underwriting risk continues to ratchet down," he said.
Credit Suisse was the latest bank last month to prune back its exposure to this market, while liquidity has also evaporated from secondary markets for trading debt. "While the prices that are quoted in over-the-counter markets look like they have recovered, there is no depth whatsoever to the market," Mr Doumar said.
Alternative providers such as Park Square can provide loans privately and with more certainty to buyout-backed companies when public markets are volatile, usually in return for higher yields and tighter terms.
Park Square was founded in 2004 by former Goldman Sachs executives and is backed by two big Canadian pension funds. The size of its new junior debt fund, compared with an €850m predecessor it raised in 2010, shows the growing clout of the alternative lenders.
"The money that's been raised is smaller than the money that has left the system," Mr Doumar said. "There is not enough supply of debt capital right now, and markets will be extremely tested by large new transactions."
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