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Churchill Financial Files To Form A BDC

With the collateralized loan obligation market still in disarray, Churchill Financial Group LLC has decided to organize a business development company.

The New York leveraged lender plans to raise up to $150 million for the vehicle, which is to be called Churchill Financial BDC Inc., according to a regulatory filing. The new company, which will issue stock to the public, plans to invest 80 percent of its assets in senior secured loans, typically to sponsor-backed borrowers in the U.S. mid-market.

“We believe that there exists a significant opportunity to achieve attractive risk-adjusted returns in the senior lending space due to the lack of bank financing for growing middle market companies,” Churchill Financial said in the filing. “We believe that first lien senior loans represent particularly attractive investments when compared to similar loans originated in the 2006-2007 period due to what we expect to be more attractive pricing and more conservative borrowing terms and deal structures.”

Churchill Financial said it plans to use the BDC to lend $5 million to $25 million at a time, primarily to private companies with EBITDA of $5 million to $50 million. As a pass-through investment vehicle, a BDC can leverage its loans only 1:1, where a bank’s reserve requirements may allow it to leverage its assets perhaps 8:1. BDC borrowers typically are not rated by agencies.

Churchill Financial said it might also seek a license from the Small Business Administration to operate the BDC as a small business investment company. SBICs operate under a different set of restrictions from BDCs, including a limitation of $75 million in the amount of capital raised. But an SBIC also can operate with 2:1 leverage, making it a $225 million fund rather than the potential $300 million of a fully leveraged BDC. The firm said an SBIC also could allow it greater flexibility in lending to smaller and lower middle market borrowers.

Established in February 2006, Churchill Financial has structured and managed six collateralized debt obligation vehicles representing more than $3 billion in assets, but the firm struggled during the credit crisis of 2008 and 2009, and its original sponsor, Irving Place Capital, sold the lender to Olympus Partners of Stamford, Conn., last May.

A Churchill Financial spokesman said he could not comment on the company while it is in registration with the SEC.

BDCs have enjoyed a resurgence as the economy has recovered from the financial crisis, with backing by firms large and small. THL Credit Inc., backed by Thomas H. Lee Partners LP, marked its one-year anniversary in April. In March, Solar Senior Capital Partners, a sister BDC to the existing Solar Capital Partners, raised $160 million in an IPO. TPG Capital’s special situations investing team filed papers in January to launch a BDC.

Steve Bills is a senior editor at Buyouts Magazine. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.