NEW YORK, July 31 (Reuters) - Antares Capital is in the market with $13.9 billion of senior secured credit facilities backing its sale to Canada Pension Plan Investment Board (CPPIB) from General Electric Capital Corp, which include a jumbo $10.7 billion asset-backed loan.
The financing, which will also help fund the middle market private equity lender's future growth, is backed by Antares' portfolio of term loans and revolving credits to U.S. middle market companies.
The secured financing stands out due to its size, and its asset-backed structure, which allows Antares to diversify its funding sources in the future by issuing a range of debt instruments via the securitization and unsecured debt markets, according to Fitch Ratings.
"It is easy to get secured financing quickly from banks," said Meghan Neenan, a senior director at Fitch, adding that the execution makes sense in terms of economics and efficiency.
The structure of the deal resembles a warehouse facility used for Collateralized Loan Obligation (CLO) funds to gather assets, Neenan said. The ratings agency expects the deal to be "termed out" by issuing a series of CLO funds over time.
Middle market lenders, which include specialty finance companies and Business Development Companies (BDCs), often issue CLOs as one of several vehicles they use to fund investments in portfolio companies.
Antares previously used CLOs to fund investments but stopped after its acquisition by GE Capital due to GE's lower funding costs, Neenan said.
CPPIB's $12 billion acquisition of Chicago-based Antares vaults Canada's largest pension fund into the top tier of U.S. middle market lenders and marks GE Capital's exit as the dominant player in that space.
General Electric Co announced plans to divest the majority of GE Capital's assets in April, including the Antares sponsor finance business and its U.S. commercial lending and leasing unit, as it seeks to minimize exposure to its finance arm amid increased regulatory scrutiny.
Credit Suisse declined to comment and CPPIB did not immediately respond to a request for comment.
Underwriters Credit Suisse, Deutsche Bank and Citigroup are currently syndicating the deal, which is targeting investment grade lenders due to Antares' BBB rating from Fitch.
Sumitomo Mitsui Banking Corp and Scotiabank have also signed on as co-arrangers and co-documentation agents, sources said. The financing launched July 27 with commitments due by August 12.
The asset-backed loan is secured by Antares' portfolio of first-lien middle market term loans and the holding company loan is backed by Antares' portfolio of revolving credit loans, sources said.
The $10.7 billion, seven-year asset-backed facility includes a $3 billion asset-backed revolving credit and a $7.7 billion asset-backed term loan. The asset-backed revolver pays 225bp over Libor when drawn and 50bp when undrawn, sources said, and is expected to be undrawn at closing. The $7.7 billion term loan pays 225bp over Libor.
"It's a great piece of paper for a bank buyer because the loan is secured by a highly diversified portfolio of first-lien loans," a banking source said.
The $7.7 billion term loan backs Antares' existing portfolio of term loans and the revolving credit can be drawn to help fund new term loans in the future, the sources said.
The financing includes a $3.2 billion, five-year credit facility at the holding company level, split between a $1.2 billion term loan A and a $2 billion revolving credit.
Pricing on the holding company loan is tied to a ratings-based grid. Pricing on both tranches is 125bp over Libor at the BBB rating level, higher at lower rating levels, said sources. The $1.2 billion TLA will amortize at 5 percent in the first year, 7.5 percent in the second, 10 percent in the third and 12.5 percent in the last two years.
The $2 billion holding company revolving credit will fund revolver draws by Antares portfolio companies, sources said.
Fitch Ratings assigned a BBB expected long-term issuer default rating and expected secured debt rating to Antares Holdings (US LP) on July 27 with a stable outlook.
"The expected ratings reflect Antares' strong middle market franchise and expansive sponsor relationships, which provide access to ample dealflow," Fitch analysts said.
The ratings reflect Fitch's belief that Antares has a lower-risk portfolio profile than other middle market lenders, due to its focus on senior lending positions, lower portfolio yields than lenders making riskier loans, low portfolio concentrations, minimal exposure to equity investments and strong asset quality.
Fitch said that Antares' rating constraints include higher leverage than its peers, a fully secured and relatively undiversified funding profile, potential liquidity and leverage impacts from portfolio companies drawing on revolving credits, and the execution risk associated with the separation of Antares from GE Capital.
The ratings also consider currently aggressive underwriting conditions in the middle market lending space and the potential for increased risk appetite as Antares expands its unitranche lending offering, said Fitch.
CPPIB is contributing $3.85 billion in cash toward the Antares acquisition, which Fitch said is a sizeable initial equity investment and evidence of CPPIB's long-term strategic plans for growth. (Editing By Tessa Walsh and Jon Methven)