Sankaty Advisors LLC, the debt-investment unit of Bain Capital LLC, is seeking $1 billion for its second fund that will lend to middle-market companies, according to two people familiar with the matter.
Sankaty Middle Market Opportunities Fund II LP will invest in mezzanine and make equity co-investments and senior loans, said one of the people, who declined to be identified because the fund is private.
A pullback in lending by banks and other traditional lenders has prompted at least half-a-dozen firms, including Carlyle Group LP and KKR & Co., to raise first-time funds that will make loans to mid-size businesses. Banks have been turning away from those businesses as they face higher capital costs under new financial regulations for loans made to riskier borrowers.
Jeffrey Hawkins, chief operating officer at Boston-based Sankaty, declined to comment.
Carlyle GMS Finance Inc. is seeking $1 billion for a vehicle to lend money to midmarket companies, two people with knowledge of the plan said in October. KKR is seeking as much as $500 million for a fund that would make senior loans to mid-size businesses, a person familiar with the matter said that month.
Senior loans are considered the safest form of debt because they sit on the top of the capital structure and take priority in the event of a default. Mezzanine sits in between senior debt and equity, whose holders are last in line to be paid off.
Sankaty is seeking more for its next fund than for the prior fund, which gathered almost $900 million in 2010. Sankaty Middle Market Opportunities Fund LP, which is 65 percent invested, is generating a net return of 15 percent, according to one of the people.
The new fund will be managed by Sankaty’s middle-market group, which mostly provides debt to companies. Michael Ewald, who joined Sankaty in 1998, heads the middle-market group and is portfolio manager for the fund. Ewald previously worked as an associate at Boston-based consultancy Bain & Co.
The group has invested about $3 billion in more than 110 deals since its inception in 1998, according to the firm’s website. It typically invests $20 million to $75 million in companies with more than $10 million in earnings before interest, taxes, depreciation and amortization, or Ebitda. The group’s money can be used to finance leveraged buyouts, complete recapitalizations or restructurings, provide liquidity or emerge from bankruptcy.
Founded in 1998, Sankaty Advisors had about $18.9 billion of assets under management as of Sept. 30. Jonathan Lavine, who joined Bain Capital in 1993, is managing partner and chief investment officer of Sankaty.