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42
Rothschild & Co | Annual Report 2017
Rothschild Merchant Banking
Private debt
Our private debt activities account for over €4.5 billion of assets under
management and our team comprises 30 investment professionals.
We are active through two different business lines:
• Direct Lending
• Rothschild Credit Management
Witherslack is a leading provider of specialist
education and care for children and young people
with special educational needs. In December 2014
FACS provided a bespoke financing solution to help
fund the company’s growth. This loan was repaid
in August 2017 following the sale of the company.
Having developed a strong relationship with
management, FACS positioned itself as preferred debt
provider for the acquisition by the incoming investor.
Founded in 2006, BFCC is a French dental laboratory
manufacturing prosthesis devices. The company
pioneered the import strategy and now co-leads an
extremely fragmented market with key competitive
advantages built around its cost base and logistic
model. In 2017 FADL backed a private equity investor
for the company’s primary LBO, by providing a
unitranche loan facility.
As for all Merchant Banking initiatives, the affiliation with Rothschild & Co’s other business activities provides significant
market insight and sector knowledge which we believe materially enhance our credit selection processes.
Through our private debt activities, we are able to offer our investors access to both the European mid-size corporate credit
market and the larger, broadly syndicated European and US LBO credit markets. This asset class is currently generating
increased investor demand, as investors look to diversify away from lower-yielding products and traditional fixed-income
products.
Direct Lending
Five Arrows Credit Solutions (FACS)
FACS, the Group’s junior debt fund, closed with €415 million
of commitments in 2014 and is focused on the growing
European direct lending market, originating and structuring
customised junior/subordinated financing solutions for
middle-market companies. The fund supports private equity
sponsor, entrepreneur and family-owned businesses in
a broad range of financing needs, including leveraged
buyouts, expansion and acquisition financings, as well as
recapitalisations and refinancings. The fund has continued
to demonstrate strong deployment momentum during the
year and, as of December 2017, is 93% deployed into 13
transactions with attractive risk-reward propositions. As of
December 2017, the fund has generated a strong cash
yield, having already distributed to investors approx. 0.5x the
capital called and has achieved four successful exits from its
portfolio, each delivering an attractive return (ranging from
13.6% to 28.3% IRR) in excess of the fund’s target.
As at 31 December 2017, the value of the Group’s
investment in FACS represented €28 million.
Five Arrows Direct Lending (FADL)
2017 has seen the launch of FADL, which provides
senior-secured debt to mid-market corporates and builds
on our existing private debt expertise, franchise and track
record to further leverage the potential of the asset class.
The fund is highly complementary to FACS and extends our
direct lending offering into the senior-portion of the debt
capital structure, principally in the form of first-ranking
unitranche loans. We see significant appetite from mid-sized
corporates for these form of financing as banks continue
to retreat from the market due to regulatory and capital
constraints. The strength of the market opportunity, as well
as of our existing network and dealflow, is illustrated by the
successful fundraising effort (c.€600 million raised as of
December 2017 prior to final closing) and by the positive
deployment momentum of the fund, with six investments
completed and c.40% of the fund committed as of
December 2017.
As at 31 December 2017, the value of the Group’s investment
in FADL represented €8 million.