Alternative asset manager SoundPoint Capital Management LP has struck a deal to buy the U.S. direct lending arm of CVC Capital Partners, according to a person familiar with the matter.
The expected purchase would triple the size of SoundPoint’s direct-lending assets to about $1.5 billion, helping the New York-based firm to penetrate the burgeoning market for private credit.
Luxembourg-based CVC is selling about $1 billion of loans it made to small and medium-size U.S. companies and a nine-member investment team led by Thomas Newberry and David DeSantis. The firm, which is best known for its $89 billion private-equity business, expanded into U.S. direct lending about five years ago by purchasing the private-credit operation Mr. DeSantis ran at Resource Capital Corp.
Private debt investing by nonbank institutions is booming, hitting almost $1 trillion in assets in September compared with $264 billion in 2009, according to data from Preqin. Direct lending, making private loans to “middle market” companies that have below-investment-grade credit ratings, is the largest segment of the industry, with private-equity firms, hedge funds, mutual-fund managers and publicly listed business development companies, or BDCs, piling in.
The flood of money sparked worries of excessive risk-taking and losses in economic downturns but the burgeoning asset class emerged relatively unscathed from economic closures last year. An index of direct-lending funds returned 5.45% in 2020, according to data from Cliffwater LLC, and direct-lending funds have raised or are slated to raise about $44 billion in 2021, according to data from Preqin.
SoundPoint had been looking for a way to expand direct lending for several years before clinching its deal with CVC, the person familiar with the matter said. The deal, which could be completed as soon as June 8, would boost SoundPoint’s total assets under management to about $26 billion, the person said.
The transaction is part of a spate of consolidation as the direct-lending industry matures. Sun Life Financial Inc. purchased a 51% stake in private-credit fund manager Crescent Capital Group LP last fall for up to $338 million. BDC powerhouse Owl Rock Capital Partners completed a merger in May with Dyal Capital Partners via a special-purpose acquisition company, or SPAC, creating a combined entity with $52.5 billion in assets, according to a press release.
CVC will continue direct lending in Europe and will maintain its U.S. performing credit unit, which focuses on collateralized loan obligations and high-yield bond and loan trading, the person familiar with the matter said.
