Sankaty Seeks Up to $1 Billion for Global Lending Fund

Sankaty Advisors LLC, Bain Capital LLC’s debt-investment arm, is seeking as much as $1 billion for a direct lending fund to take advantage of a retreat by banks across the globe.

The Boston-based firm is targeting $700 million with a maximum of $1 billion to provide senior secured debt to middle-market businesses in North America, Europe, Australia and New Zealand, according to a letter sent to investors, a copy of which was obtained by Bloomberg News.

Investment firms including Oaktree Capital Group LLC and Carlyle Group LP, have raised similar funds as banking rules put in place after the 2008 financial crisis have forced banks to increase capital and restrict lending. Investors are attracted to the strategy because the loans, typically to smaller companies, offer higher potential yields than junk bonds and leveraged loans.

“The middle market presents an opportunity to earn attractive risk-adjusted returns with significant premiums to the liquid credit markets,” according to the letter. “Structural changes in the global banking sector continue to constrain traditional lenders, leaving a supply and demand imbalance for middle-market financing.”

Alex Stanton, a spokesman for Sankaty from Stanton Public Relations & Marketing, declined to comment.

Sankaty, which is run by chief investment officer Jonathan Lavine, oversaw about $24 billion as of July. It invests across credit strategies including leveraged loans, high-yield bonds, distressed debt and mezzanine securities.

The firm has made $2.5 billion of senior direct loan investments since 1998, which are producing a 12.2 percent internal rate of return, according to the letter. The new pool, which has a life of six years, will invest over three years.

High-yield, high-risk bonds are yielding 6.4 percent, according to a Bank of America Merrill Lynch index.

Sankaty has historically offered mezzanine debt to mid-sized companies, according to the letter. The firm’s 22-person middle-market group has invested more than $6 billion since 1998.

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