THL Credit BDC “On Hold” – Sources

The public offering for a credit fund owned by THL Partners has been placed on hold for the foreseeable future, several sources familiar with the situation tell peHUB. The Boston-based firm filed a prospectus to raise $300 million for a business development corporation (BDC) in June.

That THL Credit would wait for better timing to take its funds public is no surprise, despite an increasingly hot IPO market.

The other BDC in registration this year already threw in the towel. In May, Nelson Peltz filed with plans for a similar move, seeking to raise $300 million for a newly formed blind pool BDC called Trian Capital Corporation. That effort was pulled from the market in August, citing the lack of investor appetite for BDC IPOs.

A person familiar with the matter said the firm is in “no rush” to take the fund public as it continues to invest from its initial $500 million pool. That vehicle was raised in June 2007 to invest in structured debt finance. The person said THL Credit will have completed three deals in fourth quarter and has enough dry powder to maintain that deal flow in the first quarter of 2010. While the IPO is not currently moving forward, the firm still plans to execute the strategy, the person said.

Despite consolidation driven by distress in the BDC world, THL Credit’s strategy may resonate with investors thanks to its terms. The firm established an investor-friendly fee structure, charging a 1.5% management fee and 15% carried interest on its funds. That’s lower than the typical 2% and 20% fee structure for private equity vehicles, and the norm for BDCs.

Those terms reflect a shift in fee structures happening across the private equity world as commitments dry up LPs demand better terms. Mid-market lender Golub Capital recently took it a step further, filing to raise $150 million for an externally managed BDC with a “cumulative income incentive fee.” While most BDC managers are able to take performance fees on even failing loans, Golub Capital’s fund does not.

THL Credit Advisors is led by James Hunt, who previously was a managing director and co-founder of Bison Capital. Other execs include AIG vet Sam Tillinghast (president and COO of THL Credit), Gregg Hammer and Christopher Ochs, who co-headed Leveraged Capital at AIG, and Hunter Stropp from GE Asset Management.

Merrill Lynch, Citigroup Global Markets and Deutsche Bank Securities are serving as THL’s underwriters.

Previously:

BDCs and Their Fees

THL Raising $300 Million For Blind Pool Credit IPO

Nelson Peltz’s Trian Seeking Blind Pool IPO

Why Did Nelson Peltz’s Public Debt Fund Fail (And Will THL’s Do the Same)?