Bain Capital answers LPs’ call with $500 mln private BDC

Bain Capital’s first business development company recently called capital for as much as $218 million for debt investments in the middle market as the privately held lending unit takes off.

Bain Capital Specialty Finance Inc has drawn in more than $500 million in commitments from LPs and completed its registration with the SEC, sources said. It’s not a publicly traded BDC, however.

The pool remains in fundraising mode, the sources said.

Spotting a way to grow its credit business, which manages $30.4 billion of assets, Bain Capital launched the BDC partly because of demand from some big LPs interested in direct lending, according to the sources. The BDC structure was a better way to handle tax issues associated with the asset class, the sources said.

With BDCs allowed to use as much as 1:1 leverage, Bain Capital Specialty Finance now holds as much as $1 billion in dry powder with a focus on senior direct lending.

Drawdown

In a signal that it’s commenced deal-making, Bain Capital Specialty Finance delivered a capital-drawdown notice to its investors due on Oct. 13 relating to the sale of 5.47 million shares for an aggregate offering price of $109 million, according to a filing. With leverage, the commitment will give the BDC about $218 million to invest.

The BDC plans to invest about 70 percent of its dry powder in U.S.-based middle-market companies with EBITDA of $10 million to $150 million, a filing said. Under BDC rules, the rest of the money may be invested differently.

But instead of following other BDCs that have invested in CLOs or real estate with the 30 percent chunk, Bain Capital Specialty Finance plans to use its global platform to participate in European and Australian deals.

An industry-agnostic fund, the BDC will invest no more than 20 percent of its capital in one industry at a time, tapping the team’s expertise in most business types. The fund will avoid investments in tobacco, firearms and other businesses shunned by impact investors. The BDC will exercise caution in cyclical business like energy, while healthcare and some tech deals now offer more attractive industry dynamics, sources said.

Michael Ewald, CEO of Bain Capital Specialty Finance, is also managing director, head of the private credit group and portfolio manager for Bain Capital Credit’s Middle Market Opportunities and Senior Direct Lending funds.

Ewald joined Bain Capital in 1998. Before that, he was an associate consultant at Bain & Co as well as an analyst for Credit Suisse First Boston.

New name

In the middle market, Bain Capital Credit already manages about $4.5 billion, including more than $2.5 billion on the senior credit side and about $2 billion in junior credit. Bain Capital Credit, formerly Sankaty until this year, also takes part in unitranche financing.

Bain Capital Credit traces its roots to 1998, when the firm launched a credit business under the Sankaty Advisors name. The firm invests in leveraged loans, high-yield bonds, distressed debt, structured products, nonperforming loans and equities.

A spokeswoman for Bain Capital Credit declined to comment.

The BDC comes as middle-market lending picks up as a way for LPs to generate returns in a flat-interest-rate environment.

Shares of a number of publicly traded BDCs have fallen below their net asset values because of exposure to the energy sector and other issues. But in recent months, BDCs perceived as stronger have made up lost ground.

In one major deal in the BDC landscape, Ares Capital Corp is buying American Capital Ltd in a deal expected to close at year end.

Other public BDCs run by PE firms include Apollo Investment Corp, Goldman Sachs BDC Inc, New Mountain Finance Corp, THL Credit Inc and TPG Speciality Lending Inc, along with privately held BDCs run by Carlyle Group, Carlyle GMS Finance Inc, and others.

Action Item: Bain Capital Credit’s Private Credit Group: privatecredit@baincapital.com.

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