CAI London Ditches Senior Debt for Equity –

Credit Agricole Indosuez acquisition finance (CAI) in London officially has announced its intention to move away from providing senior debt in order to focus on private equity. The announcement coincides with the allocation of GBP30 million ($47.4 million) for private equity investment from the bank’s own funds, to add to the GBP15 million already committed through what can be assumed was a toe-dipping’ exercise.

The bank has made seven private equity investments since 1997, achieving its first exit in October last year when Dilmun Investments bought Bomanton, an MBO arranged by CAI in 1997.

However, private equity was thought to be low on the priority list as CAI has been an active debt participant in the London syndication market for large LBOs, as well as a lead arranger on smaller deals. CAI’s absence will come as a blow to those lead banks relying on mid-market’ banks for sell-down purposes.

Shift Does Not Equal Departure

Mary Clippingdale, the head of the CAI team, noted the bank will still consider providing senior debt in special situations. “We’ll continue to do it if there is some kind of upside for us-for example, if there is a mezzanine tranche or some warrants attached, or if there is a co-investment opportunity in the equity,” she said. “But if someone comes to us wanting a quote on a bog standard senior debt deal then the answer is no.” Senior debt will continue to be provided as a core product in France, the bank’s domestic market.

Ms. Clippingdale emphasized the team will continue to provide mezzanine as well as equity. Explaining the strategic shift, she said: “There is very definitely a gap at the lower end of the buyout market for doing GBP3 million to GBP5 million chunks of highly remunerated asset, whether it is mezzanine, equity or quasi-equity.” This is a claim backed up by the decision of Close Brothers to set up a new team last month focused on the same products and market niche, under the leadership of ex-Bank of Scotland structured finance director Bill Crossan.

Ms. Clippingdale said a joint focus on equity and mezzanine will allow for flexibility when the bank is asked to provide funding, for example by being able to provide a preferred equity strip alongside a mezzanine strip. For the owner-manager wanting to sell or expand his business, it means the chance to avoid bringing another team to the party.

A Plus for European LBO Shops

While the debt syndication market may suffer as a result, it is good news for private equity club deals. “The equity houses are very receptive to what we are doing, because at the lower end of the market in deal size terms people are still into reciprocity, which has completely fallen out of favor at the upper end,” Ms. Clippingdale said. “A lot of firms putting GBP5 million into a deal are quite happy to have somebody else putting in GBP3 million to GBP4 million.”

At present, the team consists of eight executives, although the group likely will hire more personnel.

Ms. Clippingdale was a member of the team at Doughty Hanson prior to joining CAI.