CPPIB teams with KKR and Stone Point on debt

CPPIB will commit $50m to MerchCap Solutions, a joint venture with KKR and Stone Point Capital, and has additionally earmarked up to $2bn for investments in mid-market debt transactions.

Canada Pension Plan Investment Board has joined forces with Kohlberg Kravis Roberts and Greenwich-based Stone Point Capital to tap into the mid-market private debt space.

The pension system’s credit affiliate CPPIB Credit Investments has committed $50 million to MerchCap Solutions, a $300 million joint venture which KKR and Stone Point set up in August last year. The vehicle, formerly known as KKR-SPC Merchant Advisors, was set up to fill the gap that was left by banks that have reduced their lending activity. Stone Point committed $150 million from its Trident V Fund and KKR committed $150 million from its balance sheet, Private Equity International reported at the time.

In addition, CPPIB has earmarked up to $2 billion for direct investments in mid-market debt and other corporate lending activities for clients of MerchCap Solutions, according to a statement.

Mark Jenkins, head of private debt for CPPIB, will join the board of directors of the company, as well as its strategic development and capital allocation committees. The day-to-day origination, execution and underwriting activities will continue to be carried out by KKR.

This transaction allows CPPIB to expand its private debt portfolio, the pension fund said. While CPPIB has a long history investing in credit opportunities, the firm has never tapped into the mid-market, which it calls an “attractive and underserved market segment”.

CPPIB’s sheer size, (which stood at around C$170.1 billion as of 30 September, 2012), keeps it from venturing too far into smaller markets. Working though the MerchCap joint venture will be a way for CPPIB to access the smaller side of the private debt universe, it said.