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NEW YORK (Reuters) - TCW Group Inc said it is buying a special situations funds group that would allow it to enter the direct lending business for middle market clients, ahead of its own sale to private equity firm The Carlyle Group LP (CG.O).
TCW, a Los Angeles-based investment firm with $135 billion of assets under management (AUM), said on Monday it is acquiring the $2 billion AUM direct lending funds of Regiment Capital Advisors LP, a Boston, Massachusetts-based investment manager.
Terms of the deal between TCW and Regiment, which is expected to close by the end of the year, were not disclosed.
By getting into the direct lending investment business, TCW can provide investors with stronger returns than other fixed income instruments without forcing them to bear the risk of equities, said Jess Ravich, who started at TCW as head of alternative products on Monday.
Over the course of the funds' 12-year history, Regiment's special situations funds have returned 11 to 12 percent, seizing on opportunities presented by companies looking for capital as U.S. banks retreat from middle market lending, Ravich told Reuters.
Furthermore, since direct lending rates are not fixed, yields on these funds would rise if interest rates go up, said Ravich, previously a managing director and head of capital markets at Houlihan, Lokey, Howard & Zukin Inc.
The acquisition allows TCW to serve middle market companies, or those with $30 million to $100 million of earnings before interest, tax, depreciation and amortization, Ravich said.
"We want to expand this business to become a relationship lender to these companies as they grow," Ravich said.
To that end, TCW expects to introduce a senior debt fund next year managed by the Regiment team.
Rick Miller, who headed Regiment's direct lending funds, will become group managing director of direct lending at TCW. Miller and Regiment's six-person investment team will remain in Boston and New York and will continue to manage their funds.
The announcement of the Regiment deal comes after a federal judge in Los Angeles last week issued a limited preliminary injunction that allows the sale of TCW to Carlyle to proceed.
TCW's sale to Carlyle is expected to close in the first quarter of next year.
(This story has been corrected to fix time period in paragraph five)
Reporting by Jessica Toonkel; Editing by Richard Chang and Phil Berlowitz