Timed Item: 10:00 am Joint Meeting of the Retirement Boards Meeting Date: 4/21/2015
Crescent Direct Lending Levered Fund, L.P. Presentation to: City of Fresno Retirement Systems April 21, 2015
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Table of Contents I.
Crescent Capital Group Firm Overview
II.
Crescent Direct Lending
III.
-
Executive Summary
-
Why Crescent Direct Lending
-
Direct Lending Market Opportunity
-
Sourcing / Underwriting / Portfolio Management
Exhibits A. Prior Portfolio Investments & Asset Composition B. Select Case Studies
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Notice to Prospective Investors The information contained in this presentation is being furnished on a confidential basis for the purpose of providing certain information about Crescent Capital Group and its predecessor entities (the “Firm”). This presentation contains confidential information and may not be copied, nor may it be transferred to any other third party without our prior written consent, and shall be returned at our request. This presentation contains information which has been derived from a number of sources. While the information is believed to be reliable, no representation is made herein by the Firm’s general partners or investment advisors as to the accuracy or completeness of such information. Nothing in this presentation constitutes an offer to sell or the solicitation of an offer to buy securities. The information in these materials is provided solely as reference material with respect to Crescent Capital Group, its people and advisory services business, as an independent asset management company. Any offer to sell or solicitation of an offer to buy a security may only be made by a separate private placement memorandum with respect to that security. Footnotes contain important information about the definition of terms used herein, the composition of the portfolios presented and related performance information as well as unrealized investment valuations and should be carefully reviewed. Market data and information included herein is based on various published and unpublished sources considered to be reliable, but has not been independently verified and there is no guarantee of its accuracy or completeness. Performance information contained herein is based in significant part on unrealized investment valuations which may not be achieved.
Past
performance does not guarantee future results. Legal, tax and regulatory changes, as well as judicial decisions, both within and outside of the United States, could have an adverse impact on Crescent Capital Group and its investments. Instability in the securities markets may increase the risk inherent in Crescent Capital Group's investments in that the ability of issuers to refinance or redeem portfolio securities held by Crescent Capital Group may depend on their ability to sell new securities in the market. Future periods of uncertainty in the U.S. economy and the economies of other countries of issuers of securities and loans in which Crescent Capital Group may invest, and the possibility of increased volatility, default rates and deterioration in financial markets, may adversely affect the value of Crescent Capital Group's investments. All information is current as of March 31, 2015 unless otherwise noted. See appendix for Certain Risk Factors.
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I.
Crescent Capital Group Overview
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Crescent Capital Group Platform
Below investment grade credit platform Capital Markets
U.S. Direct Lending
European Specialty Lending
Mezzanine
U.S. Special Situations
Bank loans and high yield bonds of U.S. and European companies
Senior secured loans for U.S.-based lower middle market companies
Private secured loans for European middle market companies
Subordinated debt with an equity component for buyouts with global coverage
Distressed debt of U.S.-based companies
•
Leading independent credit investment firm, founded in 1991, with approximately $16 billion in assets under (1) management
•
Product specialist: primarily focused on below investment grade credit across five complementary strategies
•
Investment professionals based in Los Angeles, New York, Boston and London
•
Platform supported by a dedicated, industry-focused research team covering 14 core sectors
(1) AUM as of September 30, 2014. (2) Crescent maintains internal information barrier policies which may require analysts to avoid disclosing certain information broadly within the Firm.
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(2)
Group History – Methodical Approach to Growth Los Angeles
1991
1992
1993
New York
1994
Founded with initial focus on investing in High Yield Bonds and U.S. Distressed Debt of middle market companies
1995
1996
1997
Paris1
1998
1999
2000
2001
2002
2003
London
2004
2005
2006
Joined TCW and became TCW’s Leverage Finance Group
First European investment
1.
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Effective July 2013, the Paris team relocated to the London office. CONFIDENTIAL – DO NOT DISTRIBUTE
2008
2009
2010
2011
2012
Spun-out of TCW on January 1, 2011
Mezzanine strategy established Bank Loan product established
2007
Boston
European Specialty Lending strategy established Alternative Credit product established
U.S. Direct Lending strategy established
First Asia Pacific investments
Dynamic Organization •
Management Committee oversees over 130 employees
•
Investment Team –
Over 65 team members
–
Two Co-Founders / Managing Partners; 22 Managing Directors; 11 Senior Vice Presidents; 9 Vice Presidents
Operations Team
•
–
Over 60 team members
–
Pursues highest standards with respect to compliance and risk management
–
Seeks to provide best-in-class legal, human resources, finance/accounting and investor relations
Strategies Capital Markets
Direct Lending
European Specialty Lending
Mezzanine
Special Situations
30 Team Members
10 Team Members
5 Team Members
23 Team Members
3 Team Members
Operations Investor Relations
Finance & Accounting
Legal, Compliance & Operations
HR & Admin
10 Team Members
16 Team Members
7 Team Members
28 Team Members
Information is current as of October 7, 2014.
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Complementary Credit Strategies With Flexible Product Offering •
Offer a flexible range of products via five complementary investment strategies
•
Products target the entire debt capital structure enabling clients to deploy capital in a variety of strategies at different points in the credit cycle Products
Typical Securities
Geography
Redemption Frequency
Legal Structure
Leverage(1)
Bank Loans
Bank loans
U.S., Europe
Monthly
Open-End
No
High Income
Bank loans, high yield bonds, private debt
U.S., Europe
Quarterly
Open-End
No
High Yield
High yield bonds
U.S., Europe
Monthly
Open-End
No
Alternative Credit
Bank loans, high yield bonds, structured credit, long/short
U.S., Europe
Quarterly
Open-End
Yes
Private Debt
Narrowly-syndicated debt; 144A for Life/Private Placements
U.S.
Quarterly
Open-End
No
Structured Products
Bank loan cash flow vehicles, structured credit
U.S., Europe
Varies
Open-End / Closed-End
Optional
Mezzanine
Mezzanine
Privately negotiated mezzanine debt with equity participation
Global coverage
N/A
Closed-End
No
European Specialty Lending
European Specialty Lending
European senior secured, unitranche, 2nd lien, selected subordinated debt
Europe
N/A
Closed-End
Optional
U.S. Direct Lending
Senior secured loans
U.S.
N/A
Closed-End
Optional
U.S. Special Situations
Distressed debt
U.S.
N/A
Closed-End
No
Capital Markets
U.S. Direct Lending U.S. Special Situations
(1) Leverage indicates use of borrowings to enhance returns rather than short-term borrowings or lines of credit for cash management reasons. Crescent’s Alternative Credit product has the ability to sell short to achieve investment objective when market conditions warrant.
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Representative Public Plan Client List AC Transit Employees Retirement Plan
Manchester Employees' Contributory Retirement System
Anne Arundel County Retirement System
Manhattan & Bronx Surface Transit Operating Authority
Arizona State Retirement System
Maryland State Retirement and Pension System
Boynton Beach Firefighters' Pension Fund
Massachusetts Bay Transportation Authority Retirement Fund
City of Delray Beach Police and Firefighters' Retirement System
Massachusetts Pension Reserves Investment Management
City of Hollywood Firefighters' Pension Fund
Metropolitan Transportation Authority of New York City
City of Kissimmee General Employees Retirement System
Michigan Department of Treasury
City of Pittsburgh Comprehensive Municipal Pension Trust Fund
New Castle County Employees Retirement System
City of Plantation Police Officers Pension Fund
New Hampshire Retirement System
City of Winter Springs, Florida
Oklahoma Police Pension & Retirement System
Employees' Retirement System of Baltimore County
Orange County Employees Retirement System
Employees' Retirement System of the City of New Orleans
San Jose Police & Fire
Florida State Board of Administration
South Carolina Retirement System
Illinois Municipal Retirement Fund
State of Oregon Treasury
Illinois State Board of Investment
State-Boston Retirement System
Indiana Public Employees Retirement System
Teachers' Retirement System of Louisiana
Killeen Firefighters' Relief and Retirement Fund
Texas County and District Retirement System
LACERA (Los Angeles County Employees Retirement Association)
Wayne County Employees' Retirement System
Los Angeles City Employees Retirement System Inclusion on this list should not be considered an endorsement of the investment advisor or services rendered.
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II.
Crescent Direct Lending
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Crescent Direct Lending Executive Summary1 Investment Strategy
• • • •
Invest in senior secured debt of private U.S. Lower Middle-Market companies Primary focus on private equity-backed companies Portfolio comprised of senior secured first lien, second lien and unitranche investments “Credit focused” preservation of capital strategy
Competitive Advantages
• • • • •
Formed 2005 - Experienced direct lending team with proven track record through 2008 / 2009 credit cycle Well-established Lower Middle-Market private equity and other sourcing relationships Between 2005-2010, invested a predecessor $225mm Lower Middle-Market senior secured loan fund Strong investment track record with prior fund gross realized unlevered IRR’s of 9.8% (~2x LCD Loan Index) Low credit loss history – 100% of prior fund loan investments had positive IRR’s
Current Product Offering
• • • • •
Currently managing approximately $1.4 billion of total capital (including leverage) Invested over $600 million to date across 3 funds plus SMA’s Unlevered Direct Lending Fund: 7.5%-10.0% targeted net returns Levered Direct Lending Fund: 12.0% - 13.0% targeted net returns (1.0x leverage) Levered SBIC Direct Lending Fund: 14.0% - 15.0% targeted net returns (2.0x leverage)
• • • • •
Attractive Asset Yields: 100-150bps yield premium to broadly syndicated loan market Top of the Capital Structure Investing: Senior secured focus provides strong preservation of capital Improved Structures: Less levered/stronger loan covenants than broadly syndicated loans Lower Volatility: Private senior secured debt less volatile (low mark risk) vs. broadly syndicated loans Inflation Hedge/Attractive Total Returns: Floating rate investments can offer inflation hedge and total return upside in rising rate environment
•
Reduced Overlap Risk: Ability to create unique credit portfolios (no index names) reduces overlap risk
Investment Considerations
1.
All historical references to Crescent’s direct lending team and track record prior to June 2012 are based on Crescent principals while at their previous investment firm, HighPoint Capital Management, LLC, from January 2005-May 2012. Note: Past performance does not guarantee future results. Performance results include values of unrealized investments and there can be no assurance that the unrealized investments will, in fact, be realized at the presently anticipated valuations. Returns vary as the fund realizes gains or losses on its presently unrealized investments if and when they are sold. The information with respect to the competitive advantages and market opportunity, summarized on this page, represents the views only of Crescent Direct Lending.
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Crescent Direct Lending Fundraise Update • Crescent Direct Lending (“CDL”) launched three concurrent fund offerings in 2013 which invest pro rata in the same senior secured loan investments of Lower Middle-Market companies — Approximately $900mm investor commitments closed to date (approximately $1.4 billion with leverage) — Over $600mm invested to date • Multiple fund offering approach offers broad return profile opportunities to our LP’s • Significant capital base benefits all LP’s and investors
•
Target net returns – 7.5% - 10% No leverage Over $380mm investor commitments closed (over $570mm including parallel vehicles) Final close September 4, 2014
Levered Fund (Target $150mm / $300mm with leverage)
• • • •
Target net returns – 12% - 13% Target 1.0x leverage Approximately $250mm investor commitments closed ($500mm with leverage) Final close estimated Q3 2015
SBIC Fund (Target $75mm / $225mm with leverage)
• • •
Target net returns – 14% - 15% Use of 2:1 target leverage $75mm investor commitments closed on September 3, 2014 ($225mm with leverage) Final close estimated Q2 2015
Unlevered Fund (Target $300mm)
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• • •
•
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Crescent Direct Lending Team & Track Record1 •
Experienced Investment Team
• • •
•
Formed in January 2005 – five senior investment principals with over 100 years of combined lending experience Between 2005-2010 invested approximately $225mm of senior secured loan commitments in 25 private US Lower Middle-Market companies from prior fund Invested over $600mm to date from current Crescent Direct Lending vehicles 80% of senior team are former FleetBoston Financial lenders providing continuity and cohesiveness Nationwide network of sponsor, intermediary and other referral relationships to sponsor-backed Lower Middle-Market companies Over 5,000 leads since inception (average 400-500 per year) with significant recurring deal flow Origination teams led by senior investment professionals who originate, underwrite and manage portfolio investments
Nationwide Origination Capabilities
• •
Strong Underwriting & Low Credit Loss History
• • • •
Highly selective credit model – fund less than 5% of transactions reviewed No payment defaults since inception in January 2005 100% of loan investments with positive IRRs Low annual loan loss rate (less than 20bps/year)2
Strong Investment Returns1
•
Gross realized unlevered senior loan IRR3 of 9.8% vs. S&P LCD Senior Leveraged Loan Index of approximately 5.4% January 2005- March 2013 Almost 2X senior loan market index returns 100% of prior fund loan investments fully-realized
1. 2. 3.
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• •
All historical references to Crescent’s direct lending team and track record prior to June 2012 are based on Crescent principals while at their previous investment firm, HighPoint Capital. Management, LLC, from January 2005-May 2012. Gross unlevered IRR’s are after realized losses, but before management fees, from January 2005-March 2013. Net returns after management fees will be lower. $3.2 million cumulative realized loan losses on $224.1 million cumulative loan commitments between January 2005 – March 2013. Gross IRRs are before management fees and include unrealized investments. Actual Gross IRRs when fully-realized may be less. Net IRRs after management fees will be lower. The gross IRR calculations are made on the basis of the actual timing of investment inflows and outflows, aggregated at least monthly and annualizing the resulting return. An IRR is a function of the length of time from the initial investment to ultimate realization and, for a given dollar amount realized, the IRR will decrease as the investment holding period increases. The gross IRR calculation measures investment-level returns and does not reflect the deduction of fees and expenses, or timing differentials between investor cash flows and investment cash flows. The net IRR for an investor will be reduced by the annual management fee, the incentive fee and by any other expenses that are incurred in the management of an account, and the difference between gross IRR and net IRR can be substantial.
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Crescent Direct Lending Investment Team John Bowman – Managing Director and Member Investment Committee (Industry: 30 yrs) • HighPoint Capital Management – President (2005 – May 2012) • FleetBoston Financial (1998-2003) - Boston Head of High Yield and Mezzanine Loan Structuring • Donaldson, Lufkin & Jenrette (1994-1998) - Senior Vice President Leveraged Finance • Lehman Brothers, Drexel Burnham, State Street Bank, Kidder Peabody (1984-1992) - Investment Banking - Leveraged Finance • M.B.A. Harvard / B.S. Business Northeastern Scott Carpenter – Managing Director and Member Investment Committee (Industry: 25 yrs) • HighPoint Capital Management – Executive Vice President (2005 – May 2012) • Bank of America Business Capital / Fleet Capital (2000-2004) - Northeast Head of Business Development • Fleet Bank (1996-1998) - VP of Originations & Portfolio Manager and PNC Business Credit (1998-2000) - Vice President & Office Head (opened Boston office) • Joan Fabrics (1990-1996) – Vice President of Finance and International Sales Manager • Bank of Boston (1982-1985) and Bank of New England (1985-1990) - Vice President, Loan Originations and Portfolio Manager • B.A. Economics Tufts Mike Rogers – Managing Director (Industry: 30 yrs) • HighPoint Capital Management – Managing Director (2008– May 2012) • Bank of America Securities, LLC (2004-2008) - Relationship Manager • Fleet Securities (1997-2004) - Co-Head of Loan Structuring and Syndications • Fleet Bank (1988-1997) - Multiple Lending and Management roles, including team leader in Fleet’s loan workout group during early 1990s • Manufacturers Hanover Trust Company (1984-1988) – Lending Officer • A.B. History Holy Cross Jake Garmey – Managing Director (Industry: 16 yrs) • HighPoint Capital Management – Managing Director (2005 – May 2012) • MCG Capital Corporation (1998-2005) - Vice President senior/mezzanine lending - MCG grew from $200 million to $900 million in assets during this period - several Board representation roles • Lehman Brothers (1994-1997) - Credit Analyst • M.B.A. Georgetown / B.A. Economics Hobart Jonathan Cignetti – Senior Vice President (Industry: 14 yrs) • HighPoint Capital Management – Director (2005 – May 2012) • Fidelity Research & Management Company (2004) – Bank/High Yield bond Research Associate • FleetBoston Financial (2000-2004) - Associate Leveraged Finance • B.S. Finance Babson
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Crescent Direct Lending Investment Team (Cont.) Gia Heimlich – Vice President (Industry: 10 yrs) • HighPoint Capital Management (2007 – 2012) – Associate • Pricewaterhouse Coopers LLP (2005 – 2007) – Associate • B.S.B.A. Accounting and Finance University of Richmond • CFA, CPA
Hayes Olofson – Vice President (Industry: 8 yrs) • Maranon Capital, L.P. (2010 – 2012) – Associate • Houlihan Lokey (2007-2010) – Financial Analyst • M.B.A. Kellogg School of Management at Northwestern University/ B.B.A. Finance University of Iowa
Brian Ferguson – Associate (Industry 3 yrs) • NewStar Financial (2012- 2015) – Associate • B.S. Finance and Economics Boston College
Jake Hixon – Associate (Industry 3 yrs) • NewStar Financial (2012 – 2014) – Associate • B.S. Finance and Economics Bentley University
Austin Parker – Analyst (Industry 2 yrs) • Fidelity Research & Management Company (2013-2015) – Research Associate • B.S. Finance Bentley University
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Prior Fund Track Record & Loan Loss Experience1 •
January 2005-March 2013 -Gross realized unlevered IRRs of 9.8% vs. senior loan market returns of approximately 5.4%
•
Consistent return profile with no payment defaults and 100% of loans with positive IRRs ($$ Millions)
Date
Date
Amount
Yield
Investment
Invested
Realized
Invested
at Close (3)
Realized Investments Vertex Fasteners Hamer Antaya Technologies Action Legal/IVIZE/AMFS National Display Solidscape Wearwell Double E Company JSI Store Fixtures Gateway EnviroServices MilesTek Corporation Winchester Electronics Belt Power Utrecht Art Supplies Titan Fitness Fairchild Insource Connect-Air The Outsource Group MooreCo Precision Manufacturing Group Copernicus Group Thorne Lazer Spot Mallet Total Realized Investments
08/04/05 09/01/05 09/22/05 01/03/06 04/21/06 06/08/06 06/29/06 09/18/06 09/22/06 12/28/06 01/23/07 04/16/07 08/10/07 08/30/07 12/31/07 01/24/08 01/29/08 03/06/08 03/31/08 04/30/08 06/05/08 10/08/08 06/23/10 09/01/10 09/29/10
08/29/08 09/19/11 03/01/07 12/17/10 05/03/10 03/31/08 09/26/07 05/07/10 12/28/07 08/19/09 01/20/12 07/25/12 08/14/09 10/31/11 06/30/11 11/17/11 07/30/12 11/15/11 01/21/11 09/30/10 11/22/11 02/09/11 02/01/12 05/25/12 03/13/13
$
$
2.5 12.7 2.8 13.1 16.6 7.0 5.4 5.6 7.5 4.0 3.3 7.5 6.1 8.5 4.0 7.5 12.0 8.5 13.6 8.4 9.0 8.3 12.0 12.3 8.3 206.1
Value at 3/31/13 Realized
7.4% $ 7.2% 8.8% 11.3% 9.9% 10.9% 12.6% 11.3% 11.0% 9.8% 12.0% 9.1% 11.1% 12.4% 9.8% 9.5% 9.3% 8.4% 9.1% 8.0% 9.0% 10.4% 8.2% 8.0% 9.4% 9.6% $
Unrealized
3.1 $ 15.5 3.2 15.0 20.5 8.0 6.3 7.4 8.6 4.8 4.3 10.0 7.1 11.4 5.5 9.5 17.0 10.9 17.1 9.5 12.2 10.3 13.7 14.1 10.0 254.8 $
Total
-
Equity
Multiple
Gross IRR
1.26x 1.22x 1.13x 1.15x 1.23x 1.14x 1.18x 1.32x 1.15x 1.20x 1.34x 1.33x 1.17x 1.34x 1.36x 1.27x 1.42x 1.28x 1.26x 1.13x 1.35x 1.25x 1.14x 1.15x 1.20x 1.24x
9.2% 8.6% 11.0% 4.8% 10.7% 13.0% 16.7% 9.8% 14.7% 8.9% 9.5% 7.5% 9.9% 8.7% 11.0% 9.8% 11.0% 10.9% 10.6% 7.1% 11.9% 13.3% 10.2% 10.2% 10.5% 9.8%
Gross IRR on Realized Loans
9.8%
$
-
Equity Return
$
3.1 15.5 3.2 15.0 20.5 8.0 6.3 7.4 8.6 4.8 4.3 10.0 7.1 11.4 5.5 9.5 17.0 10.9 17.1 9.5 12.2 10.3 13.7 14.1 10.0 254.8
1.
All historical references to Crescent’s direct lending team and track record prior to June 2012 are based on Crescent principals while at their previous investment firm, HighPoint Capital Management, LLC, from January 2005-May 2012. Gross unlevered IRR’s are after realized losses, but before management fees, from January 2005-March 2013. Net returns after management fees will be lower.
2.
Market returns based on S&P LCD Senior Leveraged Loan Index from January 2005-March 2013.
3.
Includes upfront fees amortized over three years.
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1,2
U.S. Middle Market Yield Premium •
Overall leveraged loan market continued to see yield compression during most of 2014 with yields increasing in late 2014
•
Recent leverage loan yield trends and other factors may be positive for overall 2015 yield outlook – LCD Leveraged Loan index increased to 5.4% end 2014 from 4.9% end 2013 – Increased regulatory scrutiny of banks and reduced capital access for BDC’s should be a positive
LIBOR Floor + Spread +OID (3-yr)
CDL Levered Fund: 11.7% LeveredEquivalent Yield (1)
Source: Thomson Reuters LPC. (1) Assumes 1:1 Leverage and a 3.0% cost of funds. Portfolio yield (including fees) for investments in Crescent Direct Lending Levered Fund, L.P. at March 31, 2015. Note: Past performance does not guarantee future results
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Senior Secured Loans Strong recovery rates vs. unsecured / subordinated asset classes Default Recovery by Asset Class (1987 – 2011) High
100% 80.7%
80%
56.5%
60%
Recovery Rate
41.7% 40% 23.1% 16.3%
20%
Low
0% Sr. Secured Loans
High
Sr. Secured Bonds
Sr. Unsecured Bonds
Sr. Subordinated Bonds
Priority in Capital Structure
Other Subordinated Bonds
Low
Source: Standard & Poor’s. Average of mean and median discounted recovery rates on defaulted recovery rates on defaulted bank debt and bonds 1987 – 2011.
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Average Debt Multiples: Large Corporate vs. Middle Market • Although Middle-Market loans continue to use more conservative structures/less leverage than broadly syndicated loans, senior leverage levels are being pushed in the market due to lower interest costs and higher interest coverages – CDL has maintained its conservative structuring discipline with 3.7x senior by 4.6x total leverage levels vs. the overall Middle Market Large Corporate LBO Loans
Middle Market LBO Loans
4.6x - CDL Levered Total Lvg 3.7x – CDL Levered Sr Lvg
Large Corporate is $50M or more of EBITDA, Middle-Market is less than $50MM of EBITDA Total Sources/adjusted Pro Forma Trailing EBITDA Source: Standard and Poor’s LCD
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Crescent Direct Lending Total Investment Summary(1) ($ in millions) Date
Transaction Sponsor
Investment
Business Description
Jun-13 Sep-13 Sep-13 Oct-13 Nov-13 Dec-13 Feb-14 Feb-14 Mar-14 Mar-14 Mar-14 May-14 May-14 Jun-14
AAMP SCT/Bullydog 4Refuel SQAD Hubbardton Forge Astrodyne E.l.f. Phoenix Children's Academy Beneco Xtend Healthcare Van Pool Transportation Industrial Magnetics Eptam Plastics American Residential Services
Auto aftermarket accessories Auto aftermarket engine calibration Mobile onsite refueling in Canada Media tracking business Manufacturer of lighting fixtures Electronic power supplies/filters Value-priced cosmetics Daycare services 401k benefit services Healthcare RCM Special needs transportation Industrial magnets & process equip. High precision plastics mfg Residential HVAC/Plumbing
Audax Group Global Environment Fund Kelso Clarion Capital Bunker Hill Audax Group TPG Audax Group Alpine Investors West View Capital Fort Point Capital River Associates New Heritage Capital Charlesbank
Jul-14 Jul-14
Wind River Environmental Injured Workers Pharmacy
Commercial/Res'l Environ. Svcs. Workers Comp Home Del Pharm
RFE Investment Partners ACON Investments
Aug-14 Aug-14 Sep-14
Tate's Bake Shop RESA United Recovery Systems
Baked Goods/Specialty Cookies Electrical/switching products Collections/revenue cycle management
The Riverside Company Audax Group Audax Group
Nov-14 Dec-14 Dec-14
ECRM Summit Labs Unite Private Networks
Consumer Vendor Conferences Consumer Products-Deodorants Wireless networks
Boston Ventures One Rock Capital Partners Ridgemont Equity Partners
Dec-14
Survey Sampling
Survey/Market Research firm
HGGC, LLC
Dec-14 Dec-14 Jan-15 Feb-15 Feb-15 Feb-15
DISA Taylor Yellowstone Landscape ERC TriMech Paris Presents
Employee Drug Screening Consumer Kitchenware Products Leading Commercial Landscaping AR Mgmt & BPO Services 3D Printing Branded beauty and bath products
Court Square Centre Partners CIVC RLJ Equity McCarthy Capital Wasserstein & Co
Feb-15
Epic Healthcare
Pediatric home health provider
Webster Capital
Feb-15 Total
Abracon
Distributor of Timing Devices
Evergreen Pacific Partners
Security Type
Amount Invested
Revenue
EBITDA
Senior Leverage
Total Leverage
Yield
LTV
3.7x 2.6x 5.3x 3.6x 2.9x 3.5x 3.6x 3.2x 3.5x 3.8x 3.0x 2.8x 4.6x 3.3x 3.3x 4.6x 3.9x 3.9x 3.8x 3.0x 3.0x 3.0x 5.0x 4.0x 3.9x 3.9x 3.9x 3.9x 4.5x 3.8x 4.1x 3.0x 2.3x 3.7x 3.7x 3.5x 3.5x 4.0x 3.6x
3.7x 2.6x 5.3x 5.1x 4.4x 5.1x 4.9x 4.1x 5.0x 3.8x 4.0x 2.8x 4.6x 4.7x 4.7x 4.6x 4.9x 4.9x 5.3x 4.3x 3.9x 3.9x 5.0x 5.5x 5.6x 5.6x 5.7x 5.7x 6.4x 5.2x 4.1x 3.0x 2.3x 4.9x 4.9x 4.4x 4.4x 4.7x 4.5x
6.6% 9.2% 9.0% 6.9% 6.5% 7.1% 6.6% 6.3% 8.2% 7.6% 7.3% 6.5% 9.2% 5.7% 9.3% 8.8% 5.6% 8.8% 6.1% 7.3% 5.7% 9.8% 8.3% 5.8% 5.5% 9.3% 6.3% 10.7% 5.8% 5.8% 5.8% 8.2% 7.7% 5.8% 9.9% 6.1% 9.6% 7.3% 7.5%
49.5% 38.6% 53.1% 47.8% 32.3% 47.0% 38.5% 38.3% 40.9% 54.2% 36.8% 39.8% 51.0% 48.3% 63.6% 56.9% 46.5% 58.1% 26.5% 43.3% 39.1% 48.8% 62.2% 49.7% 43.0% 60.0% 42.7% 61.8% 34.2% 46.9% 49.8% 45.0% 35.4% 36.0% 47.7% 47.8% 58.7% 53.3% 47.2%
Unrealized Investments:
Unrealized Portfolio Statistics: Blended CDL Unlevered Portfolio Yield: (2) LCD Levered Loan Index - March 31, 2015: CDL Portfolio Yield Premium:
7.5% 5.2% 2.4%
Senior Leverage: Total Leverage: LTV:
First Lien First Lien/Last-Out Unitranche First Lien First Lien First Lien First Lien First Lien First Lien First Lien First Lien First Lien Unitranche First Lien Second Lien Unitranche First Lien Second Lien First Lien First Lien First Lien Second Lien Unitranche First Lien First Lien Second Lien First Lien Second Lien First Lien First Lien First Lien First Lien First Lien First Lien Second Lien First Lien Second Lien First Lien
$10.0 22.1 4.8 25.1 9.5 22.0 10.0 9.4 22.0 21.0 16.3 10.0 22.5 20.0 4.5 49.3 7.5 4.5 7.5 11.9 14.8 15.0 10.0 12.0 7.4 8.5 12.0 17.0 18.7 15.0 12.0 30.0 14.0 9.0 7.0 12.0 15.0 27.5 $566.7
$77.3 44.2 67.4 22.3 34.8 134.0 120.0 146.2 11.9 46.2 21.8 38.7 24.4 690.6 690.6 65.7 134.6 134.6 25.1 72.3 235.9 235.9 40.9 78.7 40.2 40.2 214.5 214.5 101.9 182.8 93.8 72.2 51.3 129.0 129.0 442.6 442.6 46.9 $118.8
$14.0 13.4 24.5 12.1 6.8 23.1 29.4 17.4 6.3 11.0 5.3 10.1 5.4 53.2 53.2 11.5 25.6 25.6 7.0 12.3 61.2 61.2 11.4 20.0 23.7 23.7 52.5 52.5 26.0 40.6 11.2 9.3 6.7 24.5 24.5 51.6 51.6 14.3 $20.9
3.6x 4.5x 47.2%
(1) Includes investments in all Crescent Direct Lending Funds and parallel investment vehicles at March 31, 2015. Amounts invested in CDL Levered Fund are presented on an unlevered basis. (2) Unrealized portfolio yield (including fees) at March 31, 2015. Note: Past performance does not guarantee future results.
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Crescent Direct Lending Levered Fund, L.P. Investment Summary(1) As of March 31, 2015 ($ in millions) Date Investment
Transaction Sponsor
Business Description
Security Type
Amount Invested
Revenue
Senior Total Unlevered Levered EBITDA Leverage Leverage Yield Yield (2)
LTV
Unrealized Investments: Nov-14
United Recovery Systems
Collections/revenue cycle management
Audax Group
Nov-14 Nov-14 Dec-14 Dec-14 Nov-14
ECRM Astrodyne Summit Labs American Residential Services Unite Private Networks
Consumer Vendor Conferences Electronic power supplies/filters Consumer Products-Deodorants Residential HVAC/Plumbing Wireless networks
Boston Ventures Audax Group One Rock Capital Partners Charlesbank Ridgemont Equity Partners
Dec-14
Survey Sampling
Survey/Market Research firm
HGGC, LLC
Dec-14 Dec-14 Jan-15 Jan-15 Feb-15 Feb-15 Feb-15 Feb-15 Mar-15 Total
Taylor DISA Yellowstone Landscape Wind River Environmental ERC TriMech Paris Presents Epic Healthcare RESA
Consumer Kitchenware Products Employee Drug Screening Leading Commercial Landscaping Commercial/Res'l Environ. Svcs. AR Mgmt & BPO Services 3D Printing Branded beauty and bath products Pediatric home health provider Electrical/switching products
Centre Partners Court Square CIVC RFE Investment Partners RLJ Equity McCarthy Capital Wasserstein & Co Webster Capital Audax Group
Unrealized Portfolio Statistics: (2) Blended CDL Levered Portfolio Yield: LCD Levered Loan Index - March 31, 2015: CDL Portfolio Yield Premium:
11.7% 5.2% 6.6%
Senior Leverage: Total Leverage: LTV:
3.7x 4.6x 47.4%
(1) Investments in Crescent Direct Lending Levered Fund, L.P. through March 31, 2015. (2) Levered equivalent yield assuming 1:1 leverage and 3.0% cost of funds. Note: Past performance does not guarantee future results.
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First Lien Second Lien Unitranche First Lien First Lien First Lien First Lien Second Lien First Lien Second Lien First Lien First Lien First Lien Unitranche First Lien First Lien First Lien First Lien First Lien
$3.7 3.8 6.5 5.5 7.5 5.7 3.5 4.0 3.1 4.4 7.5 7.5 7.5 11.3 11.3 6.6 7.5 7.5 1.4 $115.6
$235.9 235.9 40.9 134.0 78.7 690.6 40.2 40.2 214.5 214.5 182.8 101.9 93.8 65.7 72.2 51.3 129.0 442.6 72.3 $158.3
$61.2 61.2 11.4 23.1 20.0 53.2 23.7 23.7 52.5 52.5 40.6 26.0 11.2 11.5 9.3 6.7 24.5 51.6 12.3 $27.1
3.0x 3.0x 5.0x 3.5x 4.0x 4.5x 3.9x 3.9x 3.9x 3.9x 3.8x 4.5x 4.1x 4.6x 3.0x 2.3x 3.7x 3.5x 3.0x 3.7x
3.9x 3.9x 5.0x 5.1x 5.5x 4.7x 5.6x 5.6x 5.7x 5.7x 5.2x 6.4x 4.1x 4.6x 3.0x 2.3x 4.9x 4.4x 4.3x 4.6x
5.7% 9.8% 8.3% 7.1% 5.8% 5.8% 5.5% 9.3% 6.3% 10.7% 5.8% 5.8% 5.8% 8.8% 8.2% 7.7% 5.8% 6.1% 7.3% 7.4%
8.3% 16.5% 13.7% 11.2% 8.7% 8.5% 8.0% 15.5% 9.7% 18.3% 8.7% 8.7% 8.7% 14.6% 13.3% 12.3% 8.7% 9.2% 11.7% 11.7%
39.1% 48.8% 62.2% 47.0% 49.7% 48.3% 43.0% 60.0% 42.7% 61.8% 46.9% 34.2% 49.8% 56.9% 45.0% 35.4% 36.0% 47.8% 43.3% 47.4%
Crescent Direct Lending Levered Fund, L.P.–Portfolio Composition
Industry Media: Diversified & Production, 5.6%
Asset Allocation
Consumer Services, 4.9% Business Services, 22.7%
High Tech Industries, 5.7%
9.8% yield
6.5% yield Unitranche, 15.3%
Capital Equipment, 6.0%
Second Lien, 17.0%
Media: Advertising, Printing & Publishing, 6.5%
Environmental Industries, 16.2%
First Lien, 67.7%
Telecommunications, 6.5% Healthcare Services, 6.5%
Consumer Goods: NonDurable, 6.5%
Consumer Goods: Durable, 6.5%
Chemicals, Plastics, & Rubber, 6.5%
Total Investments = $115.6 million(1) (1) At cost before fees/OID as of March 31, 2015. (2) Including fees. Levered- Equivalent yield of 11.7% assumes 1:1 leverage and 3.0% cost of funds.
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Blended unlevered yield = 7.4%(2)
8.6% yield
Illustrative Transaction – Wind River Environmental TRANSACTION OVERVIEW
INVESTMENT RATIONALE
Business:
Non-hazardous waste management services
• Highly recurring/non-cyclical revenue stream (Residential septic systems/commercial grease systems)
Date:
July 2014 (Original) / January 2015
Sponsor:
RFE Investment Partners
• Leading market position within Northeast U.S. – Kline’s acquisition strengthens market position in Pennsylvania
Investment:
$2.0mm Revolver Commitment $2.0mm Capex Line Commitment $6.5mm Delayed Draw Term Loan $49.2mm Unitranche Term Loan
Yield(1):
8.9%
Cap. Structure:
4.6x Senior and Total Leverage 43% equity capitalization
• Low customer concentration/attrition rates
• Strong historical financial performance • Strong management team and sponsor
HIGHLIGHTS • Lead Agent and sole-lender to highly diversified, recurring customer environmental services business with a non-cyclical waste-stream service offering. • Significant downside protection in the capital structure. EBITDA can decline by approximately (43%) and still maintain a fixed charge coverage ratio of 1.0x.
1.
Includes upfront fees amortized over three years.
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Who We Are – Why Crescent Direct Lending •
Top of the Capital Structure Focus
• •
Strong Sourcing Allows for Credit Selectivity
Highly Select Credit Screen
• •
• • • •
“Capital Preservation Focus”- senior secured loans to Lower Middle-Market and Middle-Market companies Typically first lien loans (including unitranche) or second lien loans secured by company collateral Higher recoveries in default than unsecured or mezzanine assets Strong sourcing capabilities (average 400-500 leads/year) provides foundation for highly select credit model and “credit first” mentality Deep, longstanding lower middle-market private equity firm relationships established since 2005 Historically funded less than 5% of all transactions reviewed Focus on recurring revenue business models with strong management, sponsorship, and long track record of proven financial results Avoid story credits, turnarounds, cyclical, technology, fashion-driven and event risk borrowers Careful evaluation of management teams and private equity sponsors
Conservative Investment Structuring
• • •
Conservative senior and total leverage multiples-typically less levered than broadly syndicated loans Structure investments with strong covenant package protection (not “covenant lite”) Underwrite with multiple cushions to provide downside protection
Strong Portfolio Management
• • •
Weekly, monthly, quarterly and annual reporting systems in place We seek to identify problems early and influence corrective action Significant “in-house” experience on identifying and restructuring problem credits
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Preliminary Term Sheet: Levered Direct Lending Fund1 Investment Objective:
High current income with strong preservation of capital from investments in senior secured loans of private U.S. Lower Middle-Market companies
Targeted Equity:
$150mm
Leverage Utilized:
$150mm (1.0x)2
Total Fund Size:
$300mm of Total Capital
Investment Period:
2.5 years
Term of Partnership:
5 years; two optional one-year extensions
Management Fees:
1.35% of invested equity capital
Preferred Return:
7.0%
Incentive Fees:
10.0%
Targeted Net Return:3
12.0% - 13.0%
Geography:
Primarily U.S. borrowers
Legal Counsel:
Dechert LLP
Auditors:
Ernst & Young LLP
1.
Neither Crescent Capital Group, nor its affiliates, partners, employees, agents or representatives (collectively, “CCG”) make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein shall be relied upon as a promise or a representation as to past or future performance. Past performance is not indicative of future results.
2.
Leverage utilized will vary with market conditions and terms of the Fund’s leverage facility.
3.
The information herein includes targeted yields and internal rates of returns (“IRR”), which are based on a variety of factors and assumptions and involves significant elements of subjective judgment and analysis. Targeted yields and IRRs are being presented because they provide insight into the level of risk that the manager is likely to seek with respect to the relevant product. The targeted yields and IRRs are a measure of relative risk of a portfolio of investments, with higher targets reflecting greater risk, and are not intended to be promissory in nature. Targeted yields and IRRs are estimates based on a variety of assumptions regarding, among other things, current and future asset yields for such investments and projected cash flows related thereto, current and future market and economic conditions, prevailing and future interest rates, including the cost of use of leverage, where applicable, historical and future credit performance for such investments, and other factors outside of CCG’s control. The targeted yields and IRRs are subject to uncertainties and are based upon assumptions which may prove to be invalid and may change without notice. Other foreseeable and unforeseeable events, which were not taken into account, may occur. Investors should not rely upon the targeted yields or IRRs in making an investment decision. Although CCG believes there is a sound basis for such targets, no representations are made as to the accuracy of such targets, and there can be no assurance that such targets will be realized or achieved. Additional information concerning the assumptions used in connection with the target returns is available upon request.
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Direct Lending Opportunity - Why We Focus on Lower Middle-Market •
Middle-Market direct lending is typically less competitive and offers significant yield premiums to broadly syndicated loans
•
Middle-Market opportunity created by bank consolidation and increased regulation (Basel III / increased regulation regarding leveraged loans) forcing banks to focus on larger companies –
•
We believe Lower Middle-Market is the least efficient segment of Middle-Market lending
We believe Lower Middle-Market offers better yields and reduced risk (better structures and covenants) than Upper Middle-Market
Lower Middle-Market / Middle-Market Competitive Landscape (Non-Bank)1,2
1.
Represents select competitors of Crescent Direct Lending for illustrative purposes.
2.
Several Middle-Market lenders were dislocated during economic downturn including Allied, Cratos, Dymas, First Light, Friedberg Milstein, MFC, ML Capital, Patriot, and Tygris
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Sourcing Overview and Capabilities •
•
•
Established lender to Lower Middle-Market companies nationwide ‒
Significant network of sponsor, intermediary and other referral relationships
‒
Market to approximately 500 sponsors with 200 priority relationships
‒
Generated over 5,000 financing leads since 2005 inception
‒
Over 100 Sponsors have show us five or more deal opportunities
‒
Funded deals with over 40 different private equity sponsors
Nationwide calling effort by region across broad referral source network ‒
Senior, credit-trained investment professionals lead regional calling efforts
‒
Priority sponsor coverage strategy focused on high quality sponsors and repeat deal flow
‒
Use of industry associations / conferences to efficiently cover multiple sponsor relationships
Combination with Crescent enhances deal flow and provides significant West Coast presence ‒
27 |
Generated over 1,600 leads since joining Crescent in June 2012
CONFIDENTIAL – DO NOT DISTRIBUTE
Select Target Financial Sponsor Relationships1 Northeast:
Northeast (continued):
Mid-West:
Southwest:
WestCoast:
Altus Capital
RFE Investment Partners*
Baird Capital Partners
CapStreet Group
Alpine Investors LP*
Audax Group*
Riverside Partners, LLC*
Blue Point Capital
CIC Partners, LP
Altamont Capital Partners
Boston Ventures Investment Partners*
Saw Mill Capital
CIVC Partners*
Cotton Creek Capital
Bertram Capital Management LLC
Brynwood
Sentinel Capital
Cressey and Company
Gauge Capital
Caltus Equity
Bunker Hill Capital*
Southfield Capital
Flexpoint Ford
Insight Equity
Centre Partners*
Capital Partners
Spire Capital
Frontenac Company
Levine Leichtman
Century Park Capital Partners, LP
Castanea Partners
Summit Partners
Geneva Glen Capital
Pharos Capital
ClearLight Partners LLC*
Catterton
Sverica International
Golder Hawn Johnson and Morrison
Trinity Hunt Partners
Crimson Investment
Trive Capital
Charlesbank Capital Partners LLC*
Tenex Capital Management
Grey Mountain Partners
CI Capital Partners
Topspin Partners LP*
Lasalle Capital Group, L.P.
CIP Capital
Wafra Partners LLC
Linsalata Capital
Clarion Capital Partners, LLC*
Wasserstein & Co*
Merit Capital
DW Healthcare Partners Encore Consumer Capital
Southeast:
Evergreen Pacific Partners* Excellere Partners
Clearview Capital
Watermill Ventures*
Pfingsten Partners
BB&T Capital Partners*
Frazier Healthcare Ventures
Corinthian Capital Group, LLC
Webster Capital*
Prairie Capital
Blue Sea Capital
GESD Capital Partners
DFW Capital Partners*
WestView Capital Partners*
Dominus Capital Fort Point Capital*
Mid-Atlantic:
Gemini Investors* Gridiron Capital
Acon Investments LLC*
Prospect Partners LLC
Carousel Capital
Gores Group, The
Shoreview industries
Falfurrias Capital Partners
Industrial Growth Partners
Silver Oak Services Partners, LLC
Gen Cap America*
Insignia Capital Group
Stone Arch
Harren Equity Partners LLC
JH Partners
Svoboda Capital
ICV Partners*
Pharos Capital Group, LLC
H.I.G. Capital
Argosy Capital*
The Riverside Company - MicroCap*
MSouth Equity Partners
Platform Partners
Hamilton Robinson LLC
Arlington Capital
Tonka Bay Equity Partners
Pamlico Capital
Platte River Equity
Hammond, Kennedy, Whitney & Co.
Eureka Growth Capital
Waud Capital Partners
Pine Tree Equity
Revelstoke Capital Partners
High Road Capital Partners
Global Environment Fund*
Wynnchurch Capital
Quad C
Rosewood Capital/Glenbrook Capital
Housatonic Partners
Graham Partners
Ridgemont Equity Partners*
Sorenson Capital
Kinderhook Industries
Guardian Capital Partners
River Associates Investments, LLC*
Tower Arch Capital
Leeds Equity Partners*
Halifax Group
Summit Park
Vincente Capital Partners
Lineage Capital, LLC
Incline Equity Partners
Trivest Partners, L.P.
Windjammer Capital
McCarthy Capital Corporation*
Inverness Graham Investments
Morgenthaler
LLR Partners
Nautic Partners
Milestone Partners
New Heritage Capital*
PNC Riverarch
One Rock Capital Partners*
RLJ Equity Partners*
PWP Growth Equity (Perella Weinberg) 1.
Represents select existing and target sponsor relationships.
*Closed transaction in prior or current fund.
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Disciplined Investment Process Crescent Direct Lending employs a proven sourcing and investment process
Sponsors
Investment & Commercial Banks
•
Transaction Sourcing Review 400-500 hundred transactions annually sourced from private equity sponsors and financial intermediaries
•
Initial Review by Transaction Teams Provide thoughtful, timely feedback to sponsors and intermediaries regarding level of interest and key diligence items
•
“Round Table” Reviews Thoroughly assess investment thesis and structure the transaction with senior partners and the deal team
•
Committee Approval Process Unanimous vote required
CCG / Other
Initial Review
“Round Table”
Committee
Capital Commitment <5% of transactions received
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Portfolio Monitoring – Weekly, Monthly, Quarterly, and Annual Reporting Procedures •
Weekly and monthly financial reporting by our borrowers through electronic flash reports provides “early warning” approach to portfolio monitoring ‒ Flash reports reviewed weekly during pipeline meetings ‒ Monthly tear sheet credit analysis including forward-looking covenant default risk analysis
•
All credits rated initially at close and reviewed (formal write-ups) quarterly for covenant compliance and possible ratings changes ‒ Quarterly ratings recommendations circulated to Investment Committee
•
Senior investment principals responsible for generating monthly (electronic) and quarterly (write-ups) reporting to Managing Director of Portfolio Management ‒ Weekly Portfolio Flash Update (new portfolio company financials received) ‒ Monthly Portfolio Flash Report
•
Quarterly valuations and annual valuations (reviewed by Ernst & Young) on all Direct Lending investments ‒ Low quarterly valuation volatility for private senior debt asset class
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Appendix A. Prior Fund Investment Summary B. Investment Case Studies
CONFIDENTIAL – DO NOT DISTRIBUTE
Appendix A - Prior Fund Portfolio Composition Crescent Direct Lending has historically employed a conservative senior secured lending strategy •
Primarily a senior secured first lien and second lien lender
•
Below market senior leverage multiples and disciplined approach to total leverage multiples –
Cumulative investments 2005-20101 at 2.5x Senior Debt / EBITDA and 3.4x Total Debt / EBITDA multiples
–
Significantly below overall Middle-Market senior/total leverage multiples
–
Average initial portfolio yields at closing of 9.6% (coupon plus fees amortized over three years)
CDL Cumulative Portfolio Composition1
CDL Senior Leverage Multiples vs. Market1,2 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x
3.6x 2.7x
2.4x
5.6x
6.0x
4.0x
3.7x
3.4x
CDL Total Leverage Multiples vs. Market1,2
2.7x
5.0x
3.1x 2.5x
2.5x
1.9x
1.5x
4.7x
4.0x 3.0x
4.5x
3.5x
3.4x
3.8x
3.7x
3.6x
2.7x
2.6x
1.0x
0.5x 0.0x
0.0x 2005
2006
2007
Middle Market
2008
2009
2010
Crescent Direct Lending
2005
2006
2007
Middle Market
2008
2009
Crescent Direct Lending
1.
Represents Crescent Direct Lending principals’ prior portfolio investments from calendar 2005-2010 while at HighPoint Capital Management, LLC. No predecessor portfolio investments were made after calendar 2010.
2.
Market multiples represent Standard & Poor’s LCD (Middle-Market senior and total leverage multiples).
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3.0x
2.0x
1.0x
1.0x
4.7x
CONFIDENTIAL – DO NOT DISTRIBUTE
2010
Appendix A: Prior Fund Investment Summary1 •
Attractive loan portfolio with significant yields and conservative multiples at underwrite
LTM Financials Portfolio Company
Business
Action Legal/IVIZE 2 AMFS 2 Antaya Technologies Belt Power Connect-Air Copernicus Double E Company Fairchild Industrial Gateway EnviroServices
Litigation document services Provider of medical expert witnesses Electrical components & equipment to auto industry Distributor conveyer belt parts Food Service Industry Electronic cable and cable assembly provider Independent Institutional IRB Manufacturer Web Conversion Components Industrial Controls Manufacturer Construction and Debris Recycler Manufacturer plastic bag filling equipment On-premise staffing contract services Manufacturer high end grocery store fixtures Outsourced distribution yard management services Release agents, ingredients, and machines to baking industry Distributor of cables & assemblies Manufacturer of furniture products LCD flat panel monitors for hospitals Manufacturer of bellows and assemblies Manufacturer Rapid Prototyping Systems Healthcare-only collections company Manufacturer of nutraceutical dietary supplements Gold's Gym fitness clubs Specialty retailer college fine art supplies Master distributor industrial fasteners Manufacturer industrial floor padding Manufacturer electrical connectivity solutions
Hamer3 Insource JSI Store Fixtures Lazer Spot Mallet MilesTek Corporation MooreCo National Display Precision Solidscape The Outsource Group Thorne Titan Fitness Utrecht Art Supplies Vertex Fasteners Wearwell (Tenn Mat)
Winchester Electronics 4 Total Fundings5 Weighted Average (O/S and Exited)
1. May 2. 3. 4. 5.
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Equity
Funding
Original
Sponsor
Date
Loan
1 /3/06 5/24/07 9/22/05 8/1 0/07 3/6/08 1 0/8/08 9/1 8/06 7/24/09 1 2/28/06 9/7/07 1 /29/08 9/22/06 9/1 /1 0 9/29/1 0 1 /23/07 4/30/08 9/1 0/08 6/5/08 6/8/06 3/31 /08 6/23/1 0 1 2/31 /07 8/30/07 8/4/05 6/29/06 5/8/07
$8.8 4.4 2.8 6.1 8.5 8.3 5.6 7.5 4.0 1 2.7 1 2.0 7.5 1 2.3 8.3 3.3 8.4 1 6.6 9.0 7.0 1 3.6 1 2.0 4.0 8.5 2.5 5.4 7.5 $206.1
Mt. Auburn Partners Mt. Auburn Partners Commonwealth Gen Cap America Wincove Capital DFW Capital Partners Prairie Capital Hampshire Gemini Investors Tuckerman Capital Colville Capital Champlain Capital Sterling ICV Partners Castle Island Partners Webster Capital Riverside Partners Argosy & Anvil Tuckerman Capital ClearLight Partners WestView Capital WestView Capital TopSpin Watermill Ventures n/a Audax Group
Net Debt / EBITDA
at Close
at Close
Pricing Coupon Only Incl. Floors
Senior
Total
$6.0 2.0 2.5 2.1 3.4 8.2 2.8 6.2 9.8 4.8 5.8 3.3 1 0.5 5.6 2.5 7.1 1 6.3 3.9 4.2 1 2.0 4.6 3.0 5.0 4.7 4.9 1 2.2
2.4x 1 .9x 0.9x 2.8x 2.3x 2.0x 2.7x 1 .0x 2.8x 2.0x 2.6x 2.6x 2.4x 2.9x 2.6x 3.2x 2.7x 2.3x 1 .4x 3.4x 2.3x 3.2x 3.4x 1 .9x 3.0x 2.9x
3.1 x 1 .9x 0.9x 4.9x 3.5x 4.1 x 4.4x 2.7x 3.7x 2.0x 4.3x 2.6x 3.6x 3.1 x 3.4x 3.9x 4.0x 3.5x 3.7x 3.7x 2.3x 4.0x 3.4x 4.2x 3.1 x 3.9x
L+71 9 L+750 L+500 L+525 L+600 L+700 L+550 L+650 L+488 L+400 L+700 L+51 3 L+550 L+650 L+600 L+425 L+648 L+550 L+525 L+550 L+550 L+625 L+634 L+350 L+675 L+550
L+994 L+750 L+500 L+525 L+875 L+975 L+550 L+925 L+488 L+675 L+975 L+51 3 L+700 L+825 L+600 L+425 L+648 L+800 L+525 L+850 L+725 L+900 L+634 L+350 L+675 L+675
$6.8
2.5x
3.4x
L+581
L+725
Revenue
EBITDA
$23.7 4.5 1 0.0 1 4.9 26.2 1 5.9 1 9.1 1 9.2 40.1 1 7.0 45.9 1 4.8 60.0 39.0 1 4.8 44.6 1 1 5.0 1 5.0 1 2.1 59.1 29.8 1 8.4 48.8 47.5 27.3 95.1 $39.9
Represents historical investments by Crescent’s direct lending team while at their previous investment firm, HighPoint Capital Management, LLC from January 2005 – 2012. AMFS was a division of Action Legal / Ivize. Original Hamer loan of $4.0 million on 9/1/05, refinanced to $10.0 million on 9/7/07. Original Winchester loan of $5.0 million on 4/16/07, plus add-on of Kings on 5/8/07 of $2.5 million. Leverage calculations are pro forma for Audax $2.5 million. Excludes $18.0 million unfunded Revolver commitments at close. CONFIDENTIAL – DO NOT DISTRIBUTE
Appendix B: Illustrative Transaction – Epic Healthcare TRANSACTION OVERVIEW
INVESTMENT RATIONALE
Business:
Pediatric home health services for severely disabled children
• #1 provider of pediatric home care in the U.S.
Date:
October 2013 / February 2015
• Superior value proposition and lower cost of care
Sponsor:
Webster Capital
Investment:
$12.0mm First Lien Term Loan $15.0mm Second Lien Term Loan
Yield(1)(2):
8.0%
Cap. Structure:
3.5x First Lien Leverage 4.4x Total Leverage 41% equity capitalization
• Stable reimbursement environment – home health services for disabled children a protected reimbursement space • Strong free cash flow generation • LCA add-on in February 2014 further diversifies the Company's pediatric footprint to 10 states
HIGHLIGHTS • Attractive club loan which allowed CDL to enhance LP returns by blending both first lien and second lien senior secured loans to enhance overall yields • Non-discretionary and non-cyclical services generate strong, consistent free cash flows with good downside protection
1. Reflects the blended coupon of the first lien and second lien. 2. Includes upfront fees amortized over three years.
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Appendix B: Illustrative Transaction – Xtend Healthcare TRANSACTION OVERVIEW
INVESTMENT RATIONALE
Business:
Outsourced billing/collections services for hospitals
• Recurring revenue business model (1-3 year contracts) with high renewal rates
Date:
March 2014
Sponsor:
WestView Capital
Investment:
$1.5mm Revolver Commitment $21.0mm Senior Secured Term Loan
• Backlog of booked revenue providing near-term deleveraging • Attractive health care end-market (defensive) with positive industry tailwinds • Strong cash flow generation
Yield(1):
7.6%
Cap. Structure:
3.8x Senior and Total Leverage 46% equity capitalization
• Strong management team and sponsor
HIGHLIGHTS • Joint-lead club loan which allowed CDL to achieve better pricing/fee economics for Fund investors. • Since our investment, revenue and EBITDA have increased 29.2% and 20.9%, respectively resulting in leverage declining from 3.8x to 3.1x. • Strong backlog as the Company continues to benefit from growth in healthcare expenditures, increasing complexity in the payor system, regulatory coding changes, and mandatory EMR systems implementations and changeovers. 1.
Includes upfront fees amortized over three years.
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Certain Risk Factors Nature of Debt Securities. Debt and structured equity investments in highly leveraged companies involve a high degree of risk with no certainty of any return of capital. The debt securities in which Crescent Funds and strategies (“Crescent Funds”) invest may be unsecured and subordinated to substantial amounts of senior debt, all or a portion which may be secured, may not be protected by financial covenants or limitations on additional debt, may have limited liquidity and may not be rated by a credit rating agency. Competitive Debt Environment. Crescent Funds compete with the public debt and equity markets and with other investors for suitable investment opportunities. There can be no assurance that Crescent Funds will be able to locate and complete investments, fully invest its committed capital or satisfy its rate of return objectives. Foreign Investments. Investments in non-U.S. companies involve risks not typically associated with the more developed U.S. capital markets, including risks relating to currency exchange, differences between the U.S. and foreign securities markets, differences in corporate and creditors’ rights laws and economic, and political risks. Financial Markets. Instability in the securities markets may increase the risk inherent in Crescent Funds’ investments in that the ability of portfolio companies to refinance or redeem debt and structured equity securities held by Crescent Funds may depend on their ability to sell new securities in the market. No Assurance of Investment Return. There can be no assurance that Crescent Funds will be able to generate returns for its investors or that the returns will be commensurate with the risks of investing in the type of companies and transactions described herein. Accordingly, an investment in Crescent Funds should only be considered by persons who can afford a loss of their entire investment. Past activities or investment return results of investment entities associated with the Crescent management team or its principal members, including their prior funds, provide no assurance of future success or return results. The fees and expenses charged in connection with an investment in Crescent Funds may be higher than the fees and expenses of other investment alternatives and may offset profits. Use of Leverage. Certain Crescent Funds may leverage the cost of its investments. To the extent Crescent Funds purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are not used. If the interest expense on borrowings were to exceed the net return on the portfolio of securities purchased with borrowed funds, Crescent Funds’ use of leverage would result in a lower rate of return than if Crescent Funds were not leveraged. Overall, the use of leverage, while providing the opportunity for higher returns, also increases volatility and the risk of loss. No Regulatory Approval. The Crescent Funds have not been approved or disapproved by any securities regulatory authority of any state, by the Securities and Exchange Commission, or any similar authority in another jurisdiction.
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Interest Rate Fluctuations. Interest rate fluctuations may negatively impact Crescent Funds’ investment opportunities and the rate of return on invested capital. An increase in interest rates would make it more expensive for portfolio companies to finance operations and indirectly affect the credit quality of Crescent Funds’ investments. Lack of Diversification and Reliance on Portfolio Company Management. Crescent Funds may invest in a limited number of investments and may be concentrated in only a few industries. Therefore, the aggregate return of Crescent Funds may be adversely affected by the negative performance of a relatively few investments. The manager monitors portfolio company performance; however, it is primarily the responsibility of portfolio company management to operate a portfolio company on a day to day basis and there is no assurance that such management will perform in accordance with Crescent Funds’ expectations. Dependence Upon Key Personnel. Decisions with respect to the investments and management of Crescent Funds will be made exclusively by the Crescent management team. Investors generally have no right to take part in the management of Crescent Funds and do not have an opportunity to evaluate the specific investments made by mezzanine funds or their terms. The success of Crescent Funds depends significantly upon the skill and expertise of the principal members of the Crescent management team. The departure of any of those principal members could have a material adverse effect on mezzanine funds. Conflicts of Interest. Crescent and its affiliates manage multiple funds and accounts. Key personnel will devote some business time to managing those other funds and accounts. Obligations to certain funds and accounts could in certain circumstances adversely affect the price paid or received for investments by Crescent Funds or the size or the portion of investments purchased by other Crescent Funds. No Market for Interests in Crescent Funds and Restrictions on Transfer. Crescent Funds’ interests (“Interests”) have not been registered under the United States Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, and, therefore, cannot be resold unless they are subsequently registered under the 1933 Act and other applicable securities laws or an exemption from registration is available. It is not contemplated that registration of Interests under the 1933 Act or other securities laws will ever be effected. There is no public market for the Interests, and none is expected to develop. An investor in a Crescent Fund is generally not permitted to assign its Interests without the prior written consent of Crescent, and any such assignment is subject to the terms and conditions of the operative documents of the relevant Crescent Funds . Investors must be prepared to bear the risks of owning their Interests for an extended period of time and the risk of loss of the entire investment.