HarbourVest Raises Mid-Market Loan Fund

LONDON (Reuters) – Boston-based investment firm HabourVest Partners secured funding on Tuesday for a new investment company which will invest in European senior secured loans of private equity-backed mid-market firms.

The fund, HarbourVest Senior Loans Europe, will invest in both primary and secondary loans issued by 20-30 companies with an enterprise value of up to 1 billion euros ($1.2 billion).

HarbourVest, which announced its intention to launch the fund in April, said it had raised 101 million pounds ($144 million) by placing shares with British institutional investors.

Opportunities in loans to mid-market private equity-backed firms are typically not open to non-bank participants.

The supply of credit to all such entities, large and small, was curtailed during the early phase of the credit crunch as buyers, like banks and institutional vehicles such as collateralized loan obligations, went into preservation mode.

Recently there have been signs of a revival of acquisition lending for larger companies but less so for small and medium sized enterprises.

“Fund raising is difficult in this kind of economic climate. But this shows that if have an articulate and focused strategy, you can get funded,” said Alex Rogers, managing director at HarbourVest Partners, based in the firm’s London subsidiary.

The fund is due to list on the London Stock Exchange on Wednesday at an estimated value of 98 pence per share.

The fund loans, which will benefit from first lien security over the assets of the borrower, will be purchased from motivated or distressed sellers at a discount to their par value or will take the form of newly issued loans, HarbourVest said.

No investments will be made in distressed loans.

HabourVest said it is the first investment company to list a fund aimed specifically at investing in loans in this area of the market, but expects more to follow.

“Our strategy will be to partner with banks where those banks are lending to private equity-backed companies in the primary space,” said Rogers.

Banks are willing to lend, but the problem is that the total amount of funds available to them to lend has contracted and, due to changed risk management processes, the maximum amount banks are able to invest in a given credit has reduced, said Rogers.

“On the secondary side, banks may also want to sell senior loans to us for risk-related reasons or to release capital so that they can make a new loan to a different credit,” Rogers added.

The fund will be managed by HarbourVest Senior Loan Advisers L.P., an affiliate of HarbourVest Partners, LLC.

HarbourVest Senior Loan Europe’s board will be made up of five non-executive directors, four of whom are independent of the fund manager.

The company intends to pay dividends twice a year, with dividends payable during its first financial year. In addition, the company expects to return capital to investors on a pro rata basis during the life of the company, after an initial two-year investment period.

(Reporting by Natalie Harrison and Alex Chambers; Editing by Mike Nesbit) ($1=0.8174 euro = 0.6994 pounds)