An increasing number of middle market direct lending fund managers are employing securitisation technology to facilitate the ramp-up and marketing process for their funds. By employing a structure similar to a CLO warehouse, the direct lending funds can be more easily marketed across Europe, while also posing regulatory capital benefits to investors. According to Oliver Fochler, managing partner and CEO of Stone Mountain Capital, a number of managers have set up - or are in the process of setting up - CLO-type structures in order to ramp up mid-market direct lending portfolios. These structures are typically domiciled in Ireland, Malta or Luxembourg. "If the direct lending fund is structured as a securitisation, investors have the option of buying a note as debt rather than shares as equity," said Mr. Fochler. "Under Solvency II there's a benefit of investing in a securitisation over a fund because of the solvency capital ratio. A securitisation structure also typically comes with fewer marketing restrictions than an AIF." Mr. Fochler said he does not anticipate a resurgence of European middle-market CLOs like those seen pre-crisis, however. The direct lending CLO structures or securitisation companies currently in use are, unlike traditional middle market CLOs, not tranched. Structures are also typically unrated and placed in the private market. Stone Mountain Capital has recently structured an in-house European Direct Lending Fund for lower middle-market corporates in AIF format with an associated securitisation vehicle. Interview with Oliver Fochler was covered on 17th July 2017 in Capital Structure under 'CLO Warehouse Structures Providing Ramping And Marketing Benefits To Middle-Market Direct Lending Funds' (website requires registration). ![]()
Changing Business Could Drive Premier League To Capital Markets - Oliver Fochler In Global Capital29/6/2017
Stone Mountain Capital, an independent alternative investment adviser, works with general partners of direct lenders to raise capital for their funds. Among corporate mid-market and specialty finance strategies, they also lend to football clubs, and while the market is small, Stone Mountain managing partner and CEO Oliver Fochler says that there is significant opportunity in lending to elite teams. “The market is very thin, spread really between the top six clubs in the UK and in each of the major European leagues, and you have a couple of firms which source these deals,” Fochler told GlobalCapital. “There are around three firms in the UK that work on originating this type of bridge football finance deal." “There are two applications for this sort of financing. One is for a player transfer and the other one is the TV rights. You have future receivables through TV rights and you can finance using those," said Fochler. “It's a unique lending strategy where the underlying assets are very exotic, player transfers and TV broadcasting rights, so that is interesting to investors.” But for direct lenders, the loans, which can yield 6%-8% annually and up to double digit returns in some cases, are very attractive. Fochler notes that the loan is effectively asset backed and investment grade because of the nature of the clubs which are borrowing. He said that this allows lenders to “achieve unlevered returns which are better than high yield” similar to direct lending like returns, adding “it is all investment grade equivalent and uncorrelated to other assets and debt markets.” Interview with Oliver Fochler was covered on 29th June 2017 in Global Capital under 'Changing business could drive Premier League to capital markets' (website requires registration).
“The risk retention play in CLOs via CLO warehouses can be an interesting strategy for equity investors,” commented Oliver Fochler, managing partner and CEO of Stone Mountain Capital. “By investing in the CLO equity while the CLO is being structured, the investor can get a double-digit (20% per annum) upfront distribution within the first year when the CLO is ultimately sold.” He added: “The structure is complementary to traditional private equity investments, which target back-loaded multiples of 2.5x to 3x.” It is not unusual for CLO equity players to invest in the first-loss piece of the CLO warehouse, and then roll into the CLO equity. Investors also have the option to participate in the warehouse and then choose not to roll into the CLO. However, according to a UK-based investor, CLO managers generally want $10m to $20m for warehouse first loss participation, meaning that it tends to be the larger firms that participate, rather than smaller entities. Nevertheless, Mr. Fochler noted that there are a ‘good number’ of funds cropping up now that will acquire those first loss pieces. “It’s all a CLO equity play,” he said. “[Investors] are buying unrated, chunky and illiquid positions for a long-play strategy.” Interview with Oliver Fochler was covered on 29th March 2017 in Capital Structure under 'Use of sponsor-style CLO retention vehicles to drop; managers weigh alternative risk retention approaches as investors increase allocations to CLO equity strategies' (website requires registration). ![]()
Stone Mountain Capital Wins Acquisition International 2016 Investment's Leading Experts Awards23/12/2016
Stone Mountain Capital is the winner of Acquisition International 2016 Investment's Leading Experts Awards. ![]()
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