Oregon considers $100m to TPG’s BDC

TPG hired former Goldman executives Alan Waxman and Joshua Easterly to run TPG Specialty Lending, a business development company investment vehicle targeting between $800m and $1bn.

The Oregon Investment Council has recommended committing $100 million to TPG’s business develop company investment vehicle that will provide capital to mid-market companies. TPG wants to raise between $800 million to $1 billion for the vehicle, called TPG Specialty Lending.

A first close is expected at the end of April on $300 million, according to an investment memo to Oregon from Pacific Corporate Group, the pension board’s consultant. TPG registered the BDC in January.

The vehicle will provide senior and junior secured loans to mid-market companies in various sectors in the range of $50 million to $250 million. A typical loan will be in the range of $40 million to $50 million, according to documents from the Oregon Public Employees Retirement System. The loans will have “current” cash coupons to provide cash yield to investors. Cash flow also will come from fees, warrants and accumulating interest.

The vehicle is targeting returns in the lower and mid-teens. The Specialty Lending team is led by former Goldman Sachs executives Alan Waxman and Joshua Easterly. Waxman was the co-founder of Goldman’s specialty lending group, and Easterly was the co-head of that team. Prior to Goldman, Easterly worked at Foothill Capital, a subsidiary of Wells Fargo Bank, another mid-market lender.

The vehicle is expected to go public once it builds out an investment portfolio, Oregon’s investment staff said in a memo. The principals of the specialty lending group and other TPG partners are contributing a “meaningful investment” to the company, the pension documents said.

BDCs are governed by rules the US Congress established in 1940 and allow public investors to invest in private companies, generally in the US mid-market. BDCs must maintain an asset coverage ratio of at least 200 percent to borrow or pay dividends.

The BDC field in the US experienced some consolidation in the financial downturn. In 2009, Ares Capital, a BDC, acquired fellow BDC Allied Capital for $648 million shortly after Allied restructured its debt to stave off bankruptcy. American Capital, another BDC, also struggled through the downturn to stay out of bankruptcy.

Apollo Global Management  has a BDC called Apollo Investment Corporation listed on the NASDAQ.