By Matt Wirz
Canadian insurer Sun Life Financial Inc. is buying a majority stake in private-credit fund manager Crescent Capital Group LP to expand its alternative investments arm, SLC Management.
Sun Life will pay up to $338 million, the company said, for a 51% stake in Crescent, which Mark Attanasio and Jean-Marc Chapus founded about three decades ago after working for Michael Milken at now-defunct junk-bond powerhouse Drexel Burnham Lambert.
Los Angeles-based Crescent manages about $28 billion through funds that focus on private credit, or direct lending, to companies with below-investment-grade credit rating, a hot area in the asset-management industry.
The transaction adds a team with loan and distressed-debt expertise to SLC's lineup of bond and real-estate funds. It will give Crescent's founders a cash injection to grow their business, along with a personal payday, according to the two firms.
Direct lending by money managers to companies with junk credit ratings surged in the past decade as banks pulled back from the business and institutional investors clamored for high-yielding debt to offset falling interest rates. Connecticut's public pension fund, for example, recently set up a $350 million account with Goldman Sachs Group Inc. to make private debt investments.
Sun Life, which owns U.S. mutual-fund manager MFS Investment Management, launched SLC in 2014 and has since grown investments to $193 billion as of June. The insurer used bolt-on acquisitions of small managers such as Prime Advisors, BentallGreenOak -- and now Crescent -- to accelerate its growth.
Crescent operates private-credit funds in the U.S. and Europe that offer companies bespoke loans, part of a burgeoning pool of capital that hit a record $812 billion in June 2019, according to data provider Preqin Ltd. Once a niche market for small companies, direct loans can now exceed $1 billion and are becoming a common alternative to high-yield bonds and broadly syndicated bank loans.
The rapid growth of the market has raised concerns about excessive risk-taking, especially as the coronavirus pandemic substantially curtailed sales in certain industries. Default rates for private loans hit 5.9% in the U.S. in the first quarter of the year after just one month of economic restrictions, according to law firm Proskauer Rose LLP.
"Crescent stood out to us because the firm was founded in 1991," said SLC President Steve Peacher. "It was important for us to partner with someone who'd been through a lot of cycles."
The deal is the second transformative transaction for Mr. Chapus and Mr. Attanasio, who is also principal owner of the Milwaukee Brewers. They sold their firm to Trust Company of the West in 1995, then took back control of the company in 2011 through a spinoff. In addition to the upfront payment, Sun Life committed to invest up to $750 million with Crescent, money the direct lender plans to use to launch new investment offerings.
Crescent is looking into launching funds focused on asset-based lending and trade finance, Mr. Chapus said. The deal with SLC includes a put-call option that allows transfer of the remaining interests in five years.
Paul Davies and Preeti Singh contributed to this article.
Write to Matt Wirz at firstname.lastname@example.org
(END) Dow Jones Newswires