NEW YORK: Wells Fargo is teaming up with private equity firm Centerbridge Partners to launch a fund with the capacity to lend more than US$5bil to North American middle-market companies, the groups say.
The move highlights the increasing intertwining of private capital providers and traditional banks in offering credit to companies and consumers since the global financial crisis, as heightened regulation and costs have forced banks to reevaluate the types of loans and services they provide.
Centerbridge and investors, including the Abu Dhabi Investment Authority and British Columbia Investment Management Corp, will provide the cash for the direct-lending fund – Overland Advisors.
Wells Fargo, also a minority investor in the venture, can offer loans to existing customers as an alternative to other financing options.
The loans will likely go towards major initiatives such as financing acquisitions or buying out shareholders, David Marks, executive vice-president at Wells Fargo Commercial Banking, said in an interview.
“It is all part of being more strategic with our clients over the long term,” Marks said, noting the collaboration had been under discussion for more than a year.
Loans would be offered to businesses that have earnings before interest, tax, depreciation and amortisation, ranging from US$25mil to more than US$100mil, and would be structured as senior secured debt per a regulatory filing.
“We knew that if you could marry Wells Fargo’s network and its sourcing engine with an experienced private credit investor like ourselves, you would create something special,” Centerbridge co-founder Jeff Aronson said.
Loans from direct lending funds often carry a higher interest rate than traditional bank debt, making them attractive for private capital providers.
However, as credit conditions have tightened and interest rates have risen, banks have been seeking ways into the market.
JPMorgan Chase and Co this year entered the direct lending business by setting aside at least US$10bil, Reuters reported, citing a person with knowledge of the matter. — Reuters