A Goldman Sachs Group Incorporated unit is joining firms from Ares Capital Corporation to Fifth Street Finance Corporation in raising about $2 billion to lend to companies unable to tap public markets as investors seek to extract high yields.
Goldman Sachs Liberty Harbor Capital, which is organized as a so-called business-development company and primarily lends to companies earning less than $75 million, plans to raise money in an initial public offering, according to a March 29 regulatory filing. Last week, New York-based Ares Capital, the largest BDC, raised about $290 million by selling shares, while Garrison Capital Inc. completed its IPO. Fifth Street Finance said it may raise $1 billion.
The flurry underscores the lengths investors are willing to go to in order to generate returns as the Federal Reserve keeps benchmark interest rates near zero for a fifth year. While the debt the BDCs are buying generate yields of 10 percent or more, it doesn’t typically trade.
“Banks have largely abandoned the field in direct lending to the mid-market and it’s been taken over in the last few years by BDCs and private funds,” Nicholas Marshi, the chief investment officer at Southland Capital Management, said in a telephone interview from Santa Monica, California. Marshi manages funds that invest in BDCs.
There are “significant opportunities” for lenders as about $400 billion in loans from smaller, private firms mature in the next four years, according to a report from investment bank Keefe, Bruyette & Woods Inc.