TPG Capital, one of the biggest private equity firms in the world according to the PEI 300, has registered with the US Securities and Exchange Commission to create a business development company to lend to mid-market companies.
The vehicle, called TPG Specialty Lending, will make direct investments in senior secured and mezzanine loans, as well as equity of US mid-market companies. The vehicle will target companies with annual earnings before interest, income taxes, depreciation and amortisation of $10 million to $250 million.
TPG Specialty Lending will be led by Alan Waxman and Joshua Easterly. Both Waxman and Easterly came from Goldman Sachs, where Waxman co-founded the bank’s specialty lending group and Easterly was the former co-head of the group.
BDCs are 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.
TPG will be entering the BDC field that has experienced some consolidation over the past few years, and the segment the firm plans to target, the US mid-market, continues to struggle with a shortage of capital for deals.
In 2009, BDC Ares Capital bought fellow BDC Allied Capital for $648 million shortly after Allied restructured its debt to save itself from bankruptcy. American Capital, another BDC, also struggled through the financial downturn to stave off bankruptcy and reverse its fortunes.
Another mega-firm, Apollo Global Management, also runs a BDC called Apollo Investment Corporation listed on the NASDAQ.
Capital has been scarce in the US mid-market for private equity deals, as traditional lenders slowed activity in the financial downturn, including GE Capital and CIT Group.
However, activity appears to be picking up as firms take advantage of the lending gap. FrontPoint Partners, for example, an asset management firm owned by Morgan Stanley, earlier this month closed its first-ever direct lending fund on more than $1 billion for financing mid-market deals.
TPG has been expanding its focus recently. The firm has been developing a dedicated real estate team, and recently hired former Westbrook Partners managing principal Avi Banyasz to help build the team.