Northleaf Capital boosts private credit program with US$800 million capital raise

Toronto-based private markets fund manager Northleaf Capital Partners has boosted its global private credit program by more than 50 per cent to US$2.2 billion with a new capital raise.

The private credit investment program, launched in 2016 with a focus on mid-market companies in North America and Europe, is one of the key pillars of the firm that was spun out of Toronto-Dominion Bank as a separate entity in 2009.

Northleaf now has more than US$12 billion in private equity, private credit, and infrastructure commitments under management on behalf of institutional and high-net-worth investors, including pension funds. Private credit is a general term for loans made to companies by lenders other than banks.

Stuart Waugh, Northleaf’s managing partner, said a large portion of the latest US$800 million capital raise is not destined for a typical closed-end fund that requires a long-term commitment with few liquidity options. Instead, Northleaf Senior Private Credit, which has more than US$500 million in investor commitments so far, will accept new investments each quarter and allow for earlier payouts than a traditional closed-end fund.

“We’ve seen some really good take-up from that,” Waugh said, adding that the open-ended investment fund plans to build a portfolio of senior secured loans to mid-market private companies in a variety of sectors across North American and Europe.

“The bulk of our investment activity is in the U.S. and Europe,” Waugh said, adding that the focus on senior secured debt is appealing to smaller funds and other investors that find the “safest” tranches of the credit stack more desirable.

Northleaf launched the private credit program a few years ago to create an integrated private markets platform with the firm’s existing investment strategies for private equity and infrastructure.

The firm’s latest capital raise will target debt financing to privately held companies with between $10 million and $150 million in earnings (before interest, taxes, depreciation and amortization). Waugh said the “sweet spot” would be companies with EBITDA between $40 million and $70 million.

Private company credit is increasingly coming from institutional investors in North American and Europe, according to a report released in November by the Alternative Credit Council. The trend took hold in the wake of the financial crisis of 2008 when traditional bank funding grew scarcer.

The report from ACC, an affiliate of the Alternative Investment Management Association, said 70 per cent of all private credit committed capital comes from institutional investors, and projected that the global private credit industry will grow to $1 trillion by 2020 as the base of borrowers and institutional investors continues to expand.

Mid-market borrowers, which include small to medium-sized enterprises, were receiving an increasing share of capital, according to the report.

The trends are drawing in more players in Canada. A credit capital fund launched last year by Sagard Holdings, a subsidiary of Power Corp., drew commitments from institutional investors including the Healthcare of Ontario Pension Plan (HOOPP) and a large corporate pension plan that was not identified by Sagard.

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Published at Thu, 11 Apr 2019 13:26:48 +0000