NB Private Debt Fund II is larger than its predecessor, a $ 620 million vehicle closed in September 2015.
The New York firm said the latest fund will invest in both the primary issuances and secondary purchases of private equity-backed companies’ junior debt, to aid private equity firms in financing new buyouts and add-on acquisitions for portfolio companies as well as for refinancing needs.
Neuberger Berman, which managed $ 255 billion in client assets as of September 30, said the fund on average makes investments of $ 50 million to $ 100 million.
Susan Kasser, who co-manages the firm’s private-credit business with David Lyon, said Neuberger Berman targets North American companies with $ 25 million to $ 250 million in earnings before interest, taxes, depreciation and amortisation, a segment of the market in which the risk-return profile is the most attractive.
“In financing, an attractive place for junior debt is in bigger businesses, whereas for senior debt, the opportunity lies in smaller businesses,” she said.
The Neuberger Berman fund comes as a number of lenders are gaining scale in the business of extending credit to private equity-backed companies – in some cases, stepping in to fill the financing gap left by banks retreating from the mid-market lending space.
A July report published by the Alternative Investment Management Association’s alternative credit council and advisory firm Deloitte Touche Tohmatsu said the global private-credit market has increased to $ 560 billion this year from $ 440 billion last year, with the US topping the list for both overall assets under management and new assets raised in 2015.
Industry participants said the $ 150 million-to-$ 450 million segment of loans experienced the biggest shift to non-bank lending entities, and lenders are handling bigger deals. Ares Capital Corp issued a $ 1.1 billion loan in June to fund Thoma Bravo’s acquisition of software company Qlik Technologies, while Golub Capital provided financing for Roark Capital Group’s merger of two pet-store supply companies it backed in July.
Kasser said what differentiates Neuberger Berman from its peers is its ability to leverage the firm’s deep involvement in private equity to source deals. The firm, which has been mandated to invest private credit since 2013, has about $ 35 billion in private equity assets, the bulk of which are allocations in private equity funds on behalf of institutional investors.
“Our competitors are lenders, who may also have affiliates that compete with private equity firms,” she said. “But for us, we don’t compete with private equity firms. We have a large fund investing business. We are their current or potential limited partners. So when we ask them to show us their debt deal flow, it is an easy ask and an easy give.”
Kasser said that despite the ability to see a large amount of deal activity, the firm is still “small enough to be highly selective” about the quality of companies in which it invests.
She said discipline is particularly crucial now because the market has become “borrower-friendly” since the end of the second quarter, with relatively stable market conditions and a continued low-interest-rate environment.
“Such a market attracts more borrowers,” she said. “While the deal flow is great…the majority of things we looked at, the risk return isn’t there.”
The firm added that its latest private-credit vehicle is 28% invested in 15 companies.
Neuberger Berman’s vehicle is the latest in a number of private-credit funds that have closed in recent days.
Audax Group this week hit a $ 500 million hard cap for its third senior loan fund, which aims to back mid-market companies with between $ 10 million and $ 50 million of Ebitda.
Last week, Monroe Capital raised $ 800 million for a new private credit fund, joining Bain Capital Credit, the debt unit of Bain Capital, and NXT Capital in wrapping up private-debt fundraising efforts in October.