Former Blackstone director taps private lending ‘wellspring’ to drive 30% growth

Investors hunting for higher yields are once again shovelling record amounts of cash into private lending, catapulting the asset class to more than $1-trillion globally. Onex Corporation does not see the demand fading any time soon.

The Canadian investment manager is now counting on private lending to help drive growth at its $23bn credit arm, according to Jason New, the division’s head. Private lenders soak up deals that banks will not do as they retreat from riskier assets, and charge a premium for it.

“If you believe we’re going to be in a relatively low risk-free rate environment for a prolonged period of time, people need yield in the marketplace, and the illiquidity premium you get in private credit is very attractive,” New said in an interview. “Both institutional and retail clients want that.”

Onex, one of Canada’s largest leveraged-buyout firms, has been on a hiring spree to support a major expansion in credit, luring New away from Blackstone Group last year to run the group. The firm also tapped Clint Comeaux for its high-yield strategy and Tom Higbie to work in the opportunistic credit team, among other moves.

The 100-person credit division has now filled all the key positions and the focus is on raising and deploying capital, New said. Nonbank financial firms such as Onex are looking to raise about $295bn worldwide this year for loans, mostly to private companies, according to data compiled by Preqin, the highest level on record.

New acknowledges there is already a lot of dry powder in private credit, but says there is also strong demand from borrowers as the economy recovers from the Covid-19 pandemic. Some firms need money to ramp up capacity again, and the pipeline for mergers, acquisitions and leveraged buyouts continues to be quite robust, he said, a wellspring of potential credit business.

“You’re seeing more and more borrower clients, whether it’s sponsors or non-sponsored corporates, look to the private credit markets to finance themselves as opposed to going to the broadly syndicated loan or high-yield bond market,” New said. “That trend line is here to stay, and will likely accelerate.”

Onex Credit is set to grow as much as 30% this year in fee-generating assets under management, said New, whose division manages primarily noninvestment-grade debt through a mix of leveraged loans, collateralised loan obligations (CLO), private debt, high yield and opportunistic strategies. He sees the firm expanding as much as 20% next year.

Onex, the parent company, oversees $45bn in assets, about $7.2bn of which is its own shareholder capital. The Toronto-based firm has offices in New York, New Jersey, Boston and London.

New has been hitting the road to raise money for its various credit products. The firm is also seeking to recycle capital in its CLO business, either through selling down Onex’s equity stake in existing securities or bringing in third-party investors to do more deals in partnership, New said.

In private credit, Onex Credit has the infrastructure of a bigger company because of its parent’s backing, but is choosing to operate in the middle market — lending to companies that earn $15m to $75m before interest, taxes, depreciation and amortisation — because it’s seeing less competition in that space, he said.

Last year, the firm acquired private debt shop Falcon Investment Advisors to help expand its alternative credit investing, creating a platform called Onex Falcon. Traditionally a mezzanine business, New plans to expand it into first-lien and unitranche lending, which blends multiple loans into a single facility.

Onex is also raising money for its opportunistic strategies, which encompass corporate and structured credit business. New said there are good deals to be found in providing “liquidity enhancements” to help companies with their post-pandemic recovery.

That includes financing companies that were hit hard by Covid-19 restrictions but avoided bankruptcy and now want capital to scale up investments or rebuild, he said. It also includes pandemic “winners” seeking to capitalise on the recovery, and companies that want to resume growth through acquisition.

“There’s a lot of them returning to private credit providers to allow them to execute on that pipeline, and that’s been a big source of deal flow for us,” he said.

The opportunistic credit business is also working with the private equity team to acquire control of companies through debt, New said. It is still early days, but the teams are working on proposals to buy businesses through a restructuring process, he said.

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