The chronic imbalance in global supply and demand for capital is leading more funds to consider investments like mezzanine debt, the subject of an Investment Magazine educational seminar in Melbourne on August 17, which will feature a veritable who’s who of managers in the asset class.
The founding partner of GSO Capital Partners, Tripp Smith, says the ingredients of demand for capital include the looming ‘wall’ of debt maturities in 2012-13, the US$600 billion of private equity ‘dry powder’ facing an expiring investment period over the next two years, as well as companies’ general need for capital to withstand a weak operating cycle.
In an overview of the mezzanine investing outlook, Smith will tell the seminar that the supply of capital remains constrained by banks’ reluctance to provide committed capital, the closure of the market for new collateralised loan obligation issuance, volatile high yield markets and investors placing a high premium on liquidity.
Smith will also say that this puts providers of debt capital such as mezzanine debt – which is junior to traditional bank financing but senior to equity financing in a capital structure – in the position to earn cyclically high returns.
Just how high will be illustrated by Paul Echousse, the managing partner of BNY Mellon Alcentra Mezzanine Partners. In his session outlining the deal structuring options available to investors, Echousse will point out that in the period 2005 to 2008, providers of senior term B loans earned a premium of 700 bps over LIBOR. However since 2008, that premium over LIBOR had grown to 900 bps.
Elsewhere at the seminar, Northstar Capital partner, Scott Becker, will give a sectoral overview of the middle market, highlighting what does and does not make a viable investment opportunity.
Christopher Wright, the managing director of TCW/Crescent Mezzanine Partners, will speak on the topic of ‘Mezzanine portfolio characteristics: the J-curve, diversification and risk management’.
Meanwhile Mark Hoffmeister, the principal and managing director of Pramerica Capital Partners, will get down to brass tacks with a working case study of an actual mezz debt deal.
Of interest to asset allocators will be a session from Dr. Matthias Unser, a managing director at Deutsche Bank Private Equity and the operator of a fund-of-funds of mezzanine debt managers. He will provide an overview of competitive dynamics and a guide for manager selection.
Please contact event producer Laurence Jarvis at [email protected] to ask any questions or register your interest.