Crestline expands restructuring business to offer loans to aging PE funds

  • New PE credit and fund restructuring unit launches
  • Macquarie exec joins Crestline
  • At least one other firm has also launched in the space

Crestline Investors hired an executive from Macquarie Asset Management to help launch a lending business aimed at middle-market GPs with aging private equity funds that need additional capital to groom their remaining portfolio companies for exit.

Amit Mahajan, formerly a managing director at MAM, will co-lead Crestline’s new Private Equity Credit and Fund Restructuring unit along with David Philipp, managing director.

With more than 16 years in PE portfolio financings, direct secondaries and GP restructurings, Mahajan handled sourcing and private debt transactions of $15 million to $250 million at Macquarie. He focused on secondary private equity deals and portfolio financing for PE funds. He’s also worked at PineBridge Investments.

The effort marks an expansion of offerings beyond the secondary and aging-fund practice by Crestline-Kirchner Private Equity Group, which has been working on fund restructurings since it was launched in 2013.

Crestline Investors, Fort Worth, Texas, which manages $9.5 billion with a pedigree in credit, will provide loans typically ranging from $20 million to $200 million against GP fund portfolios valued at $100 million to $500 million. Crestline is a credit-focused alternative-investment firm.

“Historically, we focused on funds that have underperformed and the LPs wanted a governance change or more resources and oversight,” Philipp said. “These financings are GP-led transactions. Usually the funds have done well, and managers are often in the carry. They have trust and a buy-in from LPs, but they don’t want to sell their portfolio companies now.”

The loans, often in the form of preferred equity or flexible debt structures, use the value of the portfolio companies in the fund as collateral and enable the GPs to invest more money without tapping LPs.

The new Crestline loan team is already working on a couple of credit deals with GPs, as well as a separate restructuring deal, Philipp said.

The financial crisis delayed the sale of many portfolio companies even in successful funds, he said.

“Now we see a lot of funds living longer and holding more residual assets,” Philipp said. “They often need additional capital to protect or maximize the value of those last assets. Structured financing transactions can be a good solution for GPs who need something other than what the traditional secondary market or a restructuring may provide.”

GPs need to crunch the numbers and to determine whether the cost of capital of the loan is justified by the investment gains they’d make by putting more money into their portfolio companies and selling them, the firm said.

GPs also need to weigh whether the cost of capital and the loan will enable them to enhance their portfolios beyond where they would be if they didn’t inject additional money.

Douglas Bratton, managing partner and chief investment officer of Crestline, will oversee the new unit managed by Philipp and Mahajan.

The PE Credit and Fund Restructuring team also includes three portfolio managers and a senior associate from the existing Crestline-Kirchner team.

It’s at least the second firm focusing on this niche after Yann Robard, formerly of Canada Pension Plan Investment Board, set up Toronto-based White Horse Liquidity Partners in 2015 as a provider of preferred equity investments in PE portfolios.

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