Blackstone Group LP has caught wind of the tremendous growth in the Direct Lending industry. Since the discontinuation of a partnership with FS Investment Corp. Blackstone’s GSO Capital Partners unit has rebuilt its business, now making nonbank loans to small and mid-size companies (sound familiar?).
This is an attempt to reestablish GSO as a major player in one of the hottest corners of the credit market. Blackstone plans to amass $10 billion of equity and debt capital for this effort in the next several months and into 2019.
If the 2000s were the golden age of private equity, the 2010s ushered in the era of private credit. Various regulations and cost-cutting solutions that followed the financial crisis led banks to abandon the so-called middle market for corporate loans, opening a void that has been filled by companies like Velocity Group USA.
According to Ares, one of the largest new credit providers, in April 2018 the total amount of direct loans outstanding in the U.S. middle market has swelled to over $910 billion. Furthermore, research has shown that pension plans, endowments, sovereign wealth funds and insurers want to invest even more.
Formerly dominated by large banks, the middle market is more and more the preserve of specialty lenders, e.g Velocity Group USA.
Some firms in the middle market industry lend to riskier companies or participate lower down in the capital structure where payback is less assured. It is almost as though Blackstone is stealing a page from Velocity Group USA’s playbook, citing it will stick to higher-quality credits and use borrowed money to boost returns.
Velocity Group USA is an example of a company that has found success using this module to date. It is encouraging for both Velocity and the industry as a whole to see a company like Blackstone pursue an aggressive investment into the non-bank lending industry. This is a solidified indication that direct lending has returned as a major player for the thousands of small and mid-size businesses in the United States.
First reported by Bloomberg LP: https://www.bloomberg.com/news/articles/2018-07-18/blackstone-seeks-direct-lending-comeback-with-10-billion-target