For the first time, these agreements will enable mid-market sized companies owned by private equity sponsors to borrow up to £100m in a single transaction that can be co-funded by all four lenders. Each transaction is originated, led and co-ordinated by RBS alone, with each investment partner undertaking their own internal credit analysis, creating a simple process for both private equity investors and small to mid-sized corporate borrowers.
These exclusive arrangements mark the entrance of AIG, Hermes and M&G, all leading asset managers with pension fund or insurance clients, into the private equity-backed mid-sized corporate finance market. RBS has already completed three transactions through these agreements, totalling around £250 million, for three UK companies in the IT Software Services sector, the Laundry Services sector and the Fast Casual Restaurant sector.
Under the terms of the agreements, AIG, Hermes, M&G and RBS will co-invest up to £100 million in a single transaction, with RBS typically providing around £15 – 30 million of its own capital. This collaborative approach provides unprecedented access to funding for RBS’s sponsor-owned mid-market business customers. RBS’s investment partners, meanwhile, benefit from RBS’s 20-year track record of lending in this market and a team of 60 dedicated staff managing RBS’s extensive network of sponsor-owned UK mid-market borrowers.
Richard Roach, Head of Financial Sponsors at RBS, said: “RBS has been a consistent lender to private equity-backed UK mid-market corporates for more than 20 years and these new co-lending agreements will make a real and unique difference in this important market.
“It makes borrowing on this scale simpler for our customers and our ability to structure competitive lending packages in this way enables us to support our private equity clients and in turn continue to help UK companies expand, create more jobs and invest more in the British economy.
“We are pleased to be working with AIG, Hermes and M&G to provide exclusive access to significant long-term investment capability and our close collaboration will ensure each transaction is executed quickly and efficiently.”
Geoff Cornell, Deputy Chief Investment Officer of AIG said: "AIG is a long term investor focused on strong credit fundamentals which makes mid-market lending an especially attractive opportunity. By partnering with RBS, AIG is able to gain direct exposure to a diverse set of borrowers in a cost-effective way, improving the diversification of our global investment portfolio.”
Harriet Steel, Global Head of Business Development, Hermes Investment Management, said: “We continue to develop solutions that provide our institutional clients risk appropriate access to uncorrelated and diversified sources of yield. European direct lending is a growing, attractive market, offering secure yield and resilient loan pricing. Our team has extensive experience in origination, credit research, loan structuring and fund management, and our partnership with RBS offers unique and enhanced access to this asset class. This represents an important step in the build out of our private debt capabilities, following the successful launch of our Real Estate Debt strategy earlier this year.”
James Pearce, Head of Direct Lending, M&G Investments, says: “This agreement continues to diversify our direct lending activities in yet another market and our clients will benefit from RBS’s extensive origination capabilities across the UK. As a new financing landscape emerges following the financial crisis, in parts of the market, banks and asset managers are now working closely in this way to ensure that UK companies have access to appropriate sources of funding in order to help them grow.”