SG Corporate & Investment Banking is shooting to be operational with a leveraged finance business in the U.S. by October. The French-banking giant is looking to build on its European sponsor and investor relationships, where it is a top-three arranger, noted Rene de Laigue, global head of leveraged and acquisition finance.
In recent years U.S. sponsors, such as The Blackstone Group, The Carlyle Group and Bain Capital, have become an increasingly important part of the European leveraged buyout landscape. In addition, in the past 18-months the investor base has also transformed. "There is a global leveraged loan market," said de Laigue, commenting on the growth of collateralized loan obligations managed by U.S. firms. These firms include some of the very same sponsors, but also Highland Capital Management, GoldenTree Asset Management and Prudential Capital.
The business will offer the entire spectrum of debt necessary for leveraged buyouts and sub-investment grade deals. This includes term loans, revolvers, capex lines, mezzanine and subordinated debt, with and without warrants, and high-yield. The firm will also offer securitization and hedging.
SG intends to cater to the middle-market and above, but sees the most opportunity and demand in the middle-market, with companies with less than $50 million of EBITDA. Still, this is a competitive market. According to Goldman Sachs research, middle-market private equity firms are being offered loans with pricing and terms not seen since 1999. Commercial banks and specialty lenders are increasingly competing with the investment banks, hedge funds and CLOs to lend to this area. Additionally, regional banks enjoying loss rates on loans that are at 15-year lows are looking to put cash to work for both relationship and investment reasons. Despite this, de Laigue stated that sponsors are clear on the need for another outlet. Further, he does not see SG's motives as driven by "where we are in the cycle. We want to be a long-term player."
There have been failed attempts by non-U.S. banks to make an impact in the North American leveraged finance market. But recently, the Royal Bank of Scotland has shown that it can be done, noted one rival banker. Also, SG is not building the business from scratch. In addition to transferring people from the European leveraged finance business, staffers will be brought across from other SG businesses in the U.S. The firm already has a franchise in media and telecom, gaming and lodging, real estate and oil and gas. There is also an existing high yield and loan syndications group.
SG is planning on a team of 10 and has engaged a headhunter to look for someone to head the group. This person will report to de Laigue and Powell Robinson, head of financing for the Americas.