1. Have you gotten lots of calls after Third Avenue Focused Credit announced December 10 it had shut down and placed its remaining assets into a liquidating trust? Has leverage gotten tighter lately as a result?
You can still get leverage, but you can’t get more than 5x EBITDA. And 4x EBITDA seems more like the comfort level of most middle-market lenders — maybe a bit more for larger, more stable firms. Everyone is worried about having debt out there in the next recession, which is more likely than not in the hold period of a private equity firm’s assets over the next five years. Highly leveraged floating rate deals are significantly harder. Banks are much less willing, it seems, to let private equity firms take out large dividends lately.
2. Antares Capital recently handled a $183.5 million unitranche credit facility in support of Abry Partners’s acquisition of Direct Travel. So deals continue to flow in the middle market despite weakness in some forms of high-yield debt?
In the middle market, we are largely insulated from a lot of the noise in the high-yield space. There is somewhat of a ripple effect, but that’s what’s great about the middle market. It continues to go along. We’re not as dependent on the broadly syndicated loan market for the $10 million to $150 million EBITDA companies we work with.
3. One GP recently said: ‘There is a feeling of widespread pullback from risk and anything that smells of heavy cyclicals’ in credit markets. What do you think?
There is something to that, but I’d phrase it a little differently. In a market where the scales are tipped a little bit more to the investors as opposed to the issuer, the nature of the credit matters. High yield is clearly wobbly. I don’t know if it’s anything systemic — it’s more episodic. I don’t honestly know about the Third Avenue story, but in terms of high-yield issuance in the energy space, everyone knows how much stress that sector is under. If you have a fund with exposure to energy names, you’re going to be under a lot of pressure.
4. The Antares purchase by CPPIB for $12 billion marked one of the larger deals in the private equity universe in 2015. With the ownership change, how did you finish out the year in terms of deal flow?
We remain No. 1 in league tables for the middle market. Of the 200 deals we closed in 2015, 90 of them were post-close with CPPIB. So, despite a choppy market and lots of change for us, we continue to deliver for our clients.
5. Back in the fall, you and David Brackett, co-managing partner, said Antares planned to re-start its CLO business to do about two a year for about $500 million each. Is that still on track?
That’s still out there. In general, CLO raises are still going on. Clearly the pace has slowed. As we get into 2016, that’s a space we’ll be active in. Overall, we’ve made a number of senior-level hires. We’re going to fill out our health care lending team. We’re excited about the people we’re hiring and look forward to more announcements in 2016.
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Photo of John Martin courtesy of Antares Capital