Dyal-backed debt spin-out eyes troubled PE deals

BlueBay spinout Arcmont will launch a strategy next year designed to help sponsors turn around underperforming businesses.

The former BlueBay private debt team has now completed its spin-out from the asset manager as Arcmont Asset Management.

As it becomes independent, the firm, headed by chief executive officer Anthony Fobel, is also plotting to launch a new strategy focused on aiding private equity sponsors to turn around underperforming portfolio companies.

Sister publication PDI revealed in June that BlueBay Asset Management’s private debt team, which has been led by Fobel since its founding in 2011, was looking to become an independent firm with the backing of a minority investment from Dyal Capital Partners. As Arcmont, the firm has $13 billion of assets under management and is an employee-owned and managed business.

There will be no effect on investors in Arcmont’s existing funds, which will be rebranded as part of the spin-out.

Commenting on the announcement, Fobel said: “Feedback from our investors has been very positive. Previously we were in a somewhat unusual position compared to most private equity or private debt managers as we were managers but not owners of our business. Investors like to see the two together as it creates a strong alignment of interest.”

Fobel said the new ownership structure will allow the firm to better incentivise, retain and attract leading talent in the private debt industry.

A spokesperson for Dyal Capital Partners added: “As in the United States, the private credit market in Europe has enjoyed tremendous tailwinds in recent years. Our partnership with Arcmont is a major step for us in this increasingly important market, and we believe that they will continue to build a market-leading business now that they are a truly independent platform.”

The firm also announced it is launching a new strategy called Capital Solutions and has made two senior hires to support the launch.

Capital Solutions will focus on the next cyclical downturn and aims to work closely with private equity and other financial sponsors on companies that are in financial difficulty.

“The increased burden of regulation, such as IFRS9, will force banks to recognise losses far earlier than was previously the case, meaning that in the next downturn, banks are going to have very little appetite to hold underperforming debt on their balance sheets,” Fobel explained.

“We want to offer the owners of underperforming businesses, whose banks want out, a source of long-term, patient capital that is flexible and can reduce the debt burden on those businesses to give them the breathing space to recover.”

He stressed that the strategy was not a “loan-to-own” proposition and is intended to work with financial sponsors to help turn around businesses that are fundamentally sound but struggling with their debt.

Fobel said Capital Solutions provides a strong complement to its existing direct lending and senior loan funds while allowing the firm to target different businesses.

“Currently we pass on one or two investment opportunities a week which are fundamentally good companies but just don’t meet the criteria for our existing funds but would be ideal candidates for our new capital solutions fund,” he said.

To support this, Arcmont has hired David Brooks from Bain Capital Credit and Alice Cavalier from PIMCO. The pair will join as partners in January 2020 and will jointly lead the new strategy, leveraging their experience in restructuring.

Brooks said: “This strategy is complementary for Arcmont and will leverage its excellent relationships with private equity sponsors, management teams, advisors and other lenders, whilst also broadening our investor offering to meet the needs of credit portfolios in more difficult economic environments.”

The hires bring Arcmont’s headcount to more than 50 people with an average of 12 years’ industry experience and covering all major companies in Europe.

As BlueBay, Arcmont closed its third direct lending fund in February this year on €6 billion, the biggest fund the firm has raised to date.