GE Antares sale will shake up middle-market lending

The sale comes as Antares CEO David Brackett marks less than four months on the job after taking the reins in February from John Martin, now working as global head of capital markets for GE Capital. Brackett declined to comment on specifics of the sale, but said the company’s lending business remains strong after the April 10 announcement of GE’s pending divestment, which is expected to wrap up this year.

“Our first quarter was double the same period last year and we’ve been awarded three new financing mandates in the first 10 days since the GE announcement,” Brackett said in an April email to Buyouts. “I’m confident we’ll be acquired quickly by a platform that will allow us to offer an even broader set of solutions to our clients.”

GE disclosed about $16 billion in fourth-quarter-ending net investment in GE Antares. That figure implies a purchase price of at least that much since similar businesses typically sell for a premium to their net investment value, according to a source. A GE spokesman declined to comment.

Hot property

GE opted to exit the middle-market lending business as part of a plan to sell about $90 billion in assets this year from its GE Capital business. As part of the transaction, GE is working to remove itself from a list of Systematically Important Financial Institutions (SIFY).

The sale comes not because the business is hurting, but because of GE’s decision to avoid the regulatory oversight that comes with being a SIFY. The Antares deal arose from this company-specific issue rather than a fire sale of a struggling business, market sources said. Citigroup and JP Morgan are advising on the deal to sell GE’s sponsor finance business, according to market sources.

Possible buyers include Blackstone Group, Oaktree Capital Management, J.P. Morgan Chase & Co, and Lone Star Funds, as well as big players in the non-bank lending arena. Middle-market lender Golub Capital is interested in taking a look at the deal, firm President David Golub told Buyouts last month. Other players contacted by Buyouts declined to comment.

“The amount of inbound interest has been incredible with both non-banks and banks, both domestic and international,” GE CFO Jeff Bornstein said on an April 17 earnings call about the various assets on the block from GE Capital, including GE Antares. “We are buoyed by the demand that we see so far. It really depends on the platform and the type of transaction we are talking about, and we are organized to be able to do this as quickly as possible. Our goal is to monetize these assets … as fast as we can.”

GE Antares offers long-term relationships with more than 300 private equity sponsors as a lead financier and syndicator of loans ranging from $30 million to $500 million. In 2014, GE Antares closed more than 200 senior loan transactions with corporate borrowers from 88 private equity firms, totaling more than $27 billion in financing.

It ranked as most active lender to private equity-backed companies in the middle market in 2014, the firm said. GE Antares also closed $2.5 billion in commitments in 2014 through its senior secured loan program jointly managed by an affiliate of Ares Capital Corp. It also beefed up its lower middle-market lending platform, adding three senior bankers who closed $250 million worth of deals last year.

Ted Koenig, president and CEO of Monroe Capital LLC, said GE is shaking up the middle-market lending world for the second time in 10 years. GE’s purchase in 2005 of Antares Capital Corp from Massachusetts Mutual Life Co also marked a major change in the business. Antares was founded by former executives of Chicago-based Heller Financial, which was bought by GE for $5.3 billion in 2001.

“It was a big deal when GE bought Antares and it’ll be transformational for the industry depending on who buys it,” Koenig said.

Deal-makers said GE Antares is such a large player that it will take either a major entity such as a big insurance company or several smaller players to buy it. It is also possible that it will be sold in pieces.

“They’re the largest player in the business – it’s hard for one firm to digest it,” Koenig said.

Robert Morris, managing director of Olympus Partners, said he doesn’t expect the transaction to impact the availability of leverage for deals.

“As long as rates stay where they are, large amounts of institutional money will be chasing yield, and middle-market senior debt is a good place to get it,” he said. “Financing will not get harder or more expensive.”

Growing market

GE’s move amounts to a major shift, but other big players have entered and exited the U.S. banking sector without affecting the overall lending environment, Morris said.

Competitors to GE Antares may try to win market share if sponsors shy away from the firm due to uncertainty over the ownership of its paper, according to market sources.

If GE Antares is bought by a large bank, it could be more subject to a cap on leverage at 6x EBITDA that banking regulators have been promoting in larger LBOs. But it will have access to lower-cost capital under a bank than if it’s bought by a non-bank lender. In the event that GE Antares gets more conservative in its lending, it could provide a market opportunity for rivals such as Ares Capital or Blackstone’s GSO unit.

John Cochran, managing director at Lovell Minnick, a buyout firm that focuses on financial service deals in the middle market, said the sale of the overall GE Capital portfolios may help create more M&A deal opportunities throughout the lending business.

“With change comes uncertainty in terms of how the GE businesses will operate and how customers are thinking about who they want their lenders to be,” Cochran said. “Uncertainty will create opportunity. We believe that some of the smaller players out there might benefit from that. And ultimately, some of the pieces of GE being sold may benefit as well from more focus around their individual businesses.”

The GE Antares deal comes during a robust time for deal-making in the financial services space overall.

“In an environment where the banks are already struggling to do a good job meeting the credit needs of small and medium-sized businesses, there’s a void out there for independent finance companies that are not constrained by bank regulations and have more freedom to meet that need,” Cochran said. “They’re growing and they need capital to support that growth.”