GPs strengthen lender relationships

While some private equity firms have had capital markets teams for years, it is only relatively recently that other GPs have added in-house staff dedicated exclusively to financing activity.

Anne Hayes, capital markets partner at The Riverside Company, is the keeper of the “black list”.

As part of her role leading the capital markets relationship efforts at the firm, Hayes maintains a running list of lenders Riverside won’t work with. Lenders can make the “black list” for a variety of reasons, including one of the most egregious – panicking and asking to be taken out of deals that have hit a rough patch.

“One of the worst things a lender could do is, if we hit a snag, not give us time to unravel that snag,” Hayes told Private Equity International in a recent interview.

Hayes has been helping coordinate Riverside’s financing activities since 2008, but only began working exclusively on managing the firm’s partner-lender programme last year.

Our overall view was we needed to have someone paying attention on a full-time basis to the debt markets and our providers

Anne Hayes

“Our overall view was we needed to have someone paying attention on a full-time basis to the debt markets and our providers, to carry out what has been the philosophy all along on the partner-lender side,” she said.

That philosophy, according to Hayes, focuses on making sure Riverside always has debt financing available – and from the right partners. “We prefer to work with folks that we know and trust on a serial basis,” she said.

The financial crisis changed a lot of things about the private equity industry, not least of which was firms’ ability to access financing for deals. Prior to the collapse of Lehman Brothers in 2008, general partners could afford to maintain a relatively small group of relationships but still access ample levels of financing to get deals done.

Credit markets froze in late 2008 and throughout the first half of 2009 as financial institutions pulled back from lending activity. This changed the lending arena for firms into a much more fragmented place with scattered pockets of financing, forcing firms to work much harder to finance deals.

The industry adapted, however, and many firms dedicated executives or even teams of professionals to working round the clock at building and maintaining relationships with lenders.

For Riverside, one of the benefits of having “serial” relationships was the ability to finance transactions in difficult lending environments.  “When the debt markets were very challenging in 2009 we still got deals done,” she said. “A lot of shops couldn’t say that.”

Warburg Pincus has maintained a strong capital markets team since 1997. Christopher Turner, managing director,  has led a group that executes approximately $25 billion in debt and equity financings annually across the firm’s portfolio.

“We try to maintain a robust set of relationships, probably with about two dozen different financing sources across scale and style of lending,” Turner said. “We need to engage in outreach to these lenders and ensure that they know what we’re all about. So when the time comes and we need to work together, they are able to say ‘Oh yeah, Warburg Pincus, we know those guys.’”

Private Equity International takes a closer look into in-house capital markets professionals in the April issue.