Direct Lending

Providing Flexible, Floating-Rate Capital to Companies and Sponsors For More than 20 Years

 
 

Prudential Capital's Jeffrey Dickson, Matt Harvey and Sarah Bittner provide an overview of direct lending.

 

Direct lending is an avenue for companies to access capital as an alternative to broadly syndicated loans or senior floating-rate capital traditionally provided by banks. Direct lending loans are provided by "non-bank" lenders, such as institutional investors.

Direct lending loans are primarily first lien, senior secured floating-rate loans but can also be second lien, revolvers, or accordion/delayed-draw facilities. They have flexible amortization profiles and final maturities of typically 5 to 6 years.

The direct lending market has become a structurally permanent source of capital for borrowers. It is principally a leveraged buyout-driven, sponsor-led market yet fundamentally relies on private placement-style credit and terms underwriting. 

We target the middle market, which is generally defined as companies with EBITDA of $10 to $50 million. Our regional office network enables companies to access growth capital globally, with the U.S., Canada, UK and Europe all meaningfully contributing.

Our Investment Focus

  • Middle-market companies with attractive growth prospects and positive cash flow
  • Typically, EBITDA of $10 to $50 million
  • Generalist industry focus with an emphasis on business services, consumer products and services, distribution and logistics, food and beverage, energy, packaging, chemicals and niche manufacturing companies
  • Management teams and owners with an economic stake in the company’s success

Centre Partners Management Quote

Structural Characteristics of a Prudential Capital Direct Lending Loan

  • Floating rate
  • Senior secured loans between $25 million and $75 million in size; ability to syndicate larger transactions of up to $400 million on a "best efforts"-basis
  • Can also provide revolvers, accordions and/or delayed-draw term loans
  • 1% to 10% amortization per year with an excess cash-flow sweep
  • Typical maturities of 5 to 6 years
  • Ability to do multi-currency, cross-border transactions, click here for more information
  • Flexible prepayment terms

Example Transactions

We have committed over $4 billion* of direct lending capital thus far.

K2 Pure Solutions    MD America    Overseas Shipholding Group    Revolution Beauty

View more examples of direct lending transactions.

*as of 12/31/18

Uses for Direct Lending Capital

The need for a direct lending loan is often event-driven:

  • Recapitalizations/Dividend recapitalizations
  • Growth capital
  • Acquisitions
  • Shareholder buyouts 
  • Generational transfers
  • Non-sponsored management buyouts
  • Sponsored leveraged buyouts
  • Cross-border financings

Benefits of Direct Lending Loans

Direct lending capital offers these five key benefits to companies:

1.

Larger Sums of Capital

For many companies, direct lending has essentially replaced their bank financing because they can receive larger amounts of capital from fewer parties.

2. 

Lower Interest Rates and No Control Dilution

With direct lending, interest rates are lower than more junior types of capital or raising equity, where you would have to give up a percentage of ownership.

3.

Speed in Execution

Direct lending loans can be closed quickly as there are fewer investors involved. A streamlined approval process can enable deals to close in as little as 4 to 6 weeks.

4.

Complement to Existing Financing

Direct lending loans also help diversify a company’s sources of capital and capital structure, satisfying needs that other types of capital are not able to. Being that they are shorter term, direct lending loans are a viable complement to longer-term financing. Diversification of funding sources is particularly important during market cycles when bank liquidity may be tight.

5.

Flexible Payment Terms

Direct lending is considered "amortization light" with 1% to 10% amortization per year, with excess cash-flow sweep.

Direct Lending Alternatives

The primary alternative to the direct lending market is the broadly syndicated market. Here are some of the advantages and disadvantages for each:

Direct Lending Market vs. Broadly Syndicated Market

Partnering with Prudential Capital Group

Many direct lending firms only focus on the private equity-sponsored, leveraged buyout side of the market, which tends to be more cyclical. We support private equity clients as well, but our primary focus is working with family-owned or management-owned companies; ownership is not often changing hands so these companies tend to look for a lender with a longer-term, more patient outlook than a bank.

Trek Quote

Our leveraged loan track record dates back to 1995, so we draw from experience when helping borrowers through difficult times. Our committed pool of capital from Prudential Financial also gives us the capacity to fund across the senior debt spectrum and provide follow-on financing as needed, as well as ensures execution. Additionally, our streamlined due diligence process enables transactions to close quickly.


Interested? We would be happy to discuss how a Direct Lending loan could work for you:

Matt Harvey
Senior Vice President
Phone: (312) 565-6253
email: click here to contact
Territory: All

Chris Halloran
Vice President
Phone: (214) 720-6235
email: click here to contact
Territory: Energy

Jack Gilbert
Director
Phone: +44 20 3837 3404
email: click here to contact
Territory: Europe

PJ LaFemina
Director
Phone: (312) 228-6512
email: click here to contact
Territory: North America