Genstar Capital today announced that it has helped launch MidCap Financial LLC, a new commercial finance company that will focus on middle-market lending to the healthcare industry. The new company will be run by the former senior managers of Merrill Lynch Capital Healthcare Finance, and has secured $500 million in equity commitments from Genstar, Lee Equity Partners and Moelis Capital Partners. So we’ve got 5 questions for Ryan Clark, a Genstar principal who helped lead the deal.
1. Is this a healthcare or financial services play?
Clark: It’s both. Over 50% of our investments have been in the healthcare and life sciences area, which is where we got to meet the MidCap management team. They’ve worked on the leveraged lending side with us for years, on deals like OnCure Medical. When GE said it was buying Merrill Lynch Capital, we approached the team and said we’d love to become their partner.
On the financial services side, I’ve been leading an effort in insurance. We’ve done a brokerage and an underwriter for the settlement industry.
2. How difficult is it right now for healthcare companies to secure commercial loans?
It’s extremely difficult, and therein is the opportunity for MidCap. We’d normally have a stable of four to six lenders that our portfolio companies would go to, but they’re just not there right now. Some of your traditional banks have pulled back from the middle-markets, while you’ve also got others like CIT announce that they’re not making loans for a little while. MidCap, though, can lend because it has capital without those legacy issues.
3. Is this a deal you would have done 12-24 months ago, before the credit crunch was so widespread?
We wouldn’t have done any commercial lending deal – last year or today – if we didn’t have this team and know that they’re the best in their industry. So it’s really a confluence of the team and the opportunity. But it’s perhaps true that if we might not have done this deal, even with this team, were we still in the lending environment of 2006.
4. How did this transaction get sourced?
As I said, we talked to this team all the time and asked them to keep us posted. When the GE deal was announced, they went out and wanted to raise $500 million. They hired Moelis & Co. who led a process and through that process they met Tom Lee. We also were brought in as part of that process, because of the interest we had previously expressed.
5. The announcement talked about $500 million in capital commitments. Is that a floor or a ceiling?
That’s enough capital for the whole business plan. If it exceeds that number, I’d think that we and the other investors would be willing and able to provide it.