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ICG’s latest direct lending fund is truly unique

ICG, the specialist asset manager with EUR27.2 billion of assets under management, announced earlier this month that it had raised EUR5.2 billion of dry powder to deploy in the third vintage of its Senior Debt Partners strategy. 

The capital raised for Senior Debt Partners III (SDP3) makes it the largest commingled direct lending fund to date, in Europe. Such was the level of interest in the wider marketplace that USD4.2 billion was new commitments, with investors coming from a large number of jurisdictions such as Israel, Korea, Australia, the US and Europe. 

One of those leading on the complex deal was Paul Hastings LLP, a leading global law firm. 

The advisory team was led by partner Diala Minott (pictured), with associates Katherine Rainwood and Paul Oumade-Singh. Assistance was also provided by tax partner Arun Birla and associate Jiten Tank.

Speaking with Private Equity Wire, Minott explains why SDP3 was a complex transaction and legal structure: 

“Firstly, it offered a series of single investor mandates at the regulated fund level with share interests. Secondly, as well as a series of single investor mandates at the unregulated Luxembourg SV level, it also offered bond interests. And thirdly, it also offered pooled investors share interests in the regulated fund – all simultaneously.  

“I don’t know of any other platform to date that can offer this flexibility level.  

“Also the Luxembourg SV, although unregulated, was in fact converted into an AIF with an AIFM in place, giving investors the same level of comfort as though they had invested in the regulated platform. It is rare to have a Luxembourg securitisation vehicle convert into an AIF – most of the time you are trying to avoid being converted into an AIF.”

This well illustrates just how innovative a structure SDP3 is. Having two layers – regulated and unregulated – both offering bond instruments and equity interests in parallel, on one platform, makes it a unique deal. “You tend to see separate funds doing this which is what we had been doing up until this structure was developed,” adds Minott.

The latest commitments raised for SDP3 will largely follow the same investment strategy as previous vintages and will invest, primarily, in directly originated senior secured loans to European mid-market corporate borrowers. 

“An increasingly diversified investor base underpins our ability to scale proven, successful strategies such as SDP but also Mezzanine and Strategic Equity, which recently held a close for its Strategic Secondaries II Fund at USD1.1 billion. This shows our commitment to growing the platform while continuing to deliver for our investors by maintaining a focus on downside risk,” commented Benoit Durteste, Chief Investment Officer and Chief Executive Officer of ICG, on 14th November 2017.

Discussing a couple of the key elements that we needed to make SDP3 a successful launch, Minott points out that the fact ICG’s platform had been up and running for a number of years meant that all operational and legal issues “had been teased out already”. 

Indeed, the fund was two times oversubscribed. 

“The flexibility of the platform meant that if an investor dropped out of the pooled fund they could instead have their own single investor mandate which made this strategy very successful.  

“Some investors even opted to have both an interest in the pooled fund and their own single investor mandate. Some investors chose a bond instrument instead of a share interest. We could provide that flexibility in order to target all investors, from Solvency 2 investors to very conservative German pension fund investors and US pension plans.”

Max Mitchell, Head of Senior Direct Lending Europe at ICG said that an important part of ICG’s approach was ensuring they sized the fund to meet the investment opportunities available. “This same rigour has supported our ability to deploy the previous funds despite some challenging market dynamics,” he said. 

Asked how she rated the technical complexity of the deal, and the level of cooperation needed with the ICG team to understand the fund’s aims, Minott responds:

“I would say eight or nine out of 10 for the technical fund structure, which was organic – even the regulator hadn’t seen a fund of this nature when they first approved it. And 10 out of 10 – we needed the entire ICG’s team cooperation to understand the fund’s aims, especially because there were so many investors around the world with differing key issues that we had to address using the one platform.” 

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