LENDER SPENDER
Wall St. bigs battle for fat-fee management firm
Billionaire private equity mogul David Bonderman crashed a rival’s party on Tuesday — stopping an alleged sweetheart deal in the $80 billion middlemarket lending sector.
In an upset, Bonderman’s TPG Global convinced shareholders of one embattled lender to reject the sale of its management arm to Jonathan Nelson’s Providence Equity Partners — even though leading shareholder proxy service ISS recommended they OK the deal.
The management arm, TICC Management, is a highly profitable piece of the lender, pocketing hedge fundlike fees of 2 percent of assets and 20 percent of profits. With $1 billion in loans, that comes to about $20 million a year.
Bonderman, 73, blasted TICC’s officers for the “abysmal returns” they have afforded the shareholders of the lender, TICC Capital.
TPG Global’s TPG Specialty Lending has offered $7.50 a share for TICC Capital — ensuring Bonderman will get his hands on the management fees, which totaled $127 million over the past 12 years.
His firm has said it will charge fees that are a little lower than what TICC Management charges.
TICC Management works for the lender based on a shortterm contract. It had a deal to sell 75 percent of itself to Providence for up to $10 million.
TICC, part of the socalled shadow banking business, operates in the littleknown backwaters of the financial services world that services middlesized business that have been left behind by banks.
Known as business develop ment corporations (BDCs), these lenders have, in moderate numbers, come under fire for straying from their bread-and-butter business of lending to businesses.
TICC has invested in much riskier collateralized loan obligations (CLOs), which have decreased in value.
TICC buys pieces of syndicated loans, including ones to tax giant Jackson Hewitt, and invests in the equity portions of CLOs, including those managed by Ares Capital.
With many CLOs heavily invested in energy, the CLO investments have depreciated in value.
“For [the fat fees the management arm gets], you want them to add value and not just pick credits,” a BDC expert said.
“Shareholders are complaining. You are getting paid when fair market value is falling?” the the BDC expert added.
TICC shares have fallen 20 percent this year, and closed Tuesday at $5.99 — and shareholders have become angry at its management arm.
Profitable due to the fat fees paid by the BDCs, the management arms have become the focus of PE titans.
The fat fees are useful for financial firms looking, perhaps, to go public.
In the TICC battle, shareholders held a vote Tuesday to approve the Providence deal.
But Nelson’s Providence got dusted. The deal “did not receive the requisite approval from the company’s stockholders” to transfer TICC’s management contract to Providenceowned Benefit Street Partners, the lender said.
In addition to TPG Capital, a credit manager, Highland Capital Management, has made overtures to TICC, which is based in Greenwich, Conn., and run by Jonathan Cohen.
Glacier Lake Capital consultant Patrick Daugherty, speaking generally of BDCs, said, “The fees need to be brought in line and the focus needs to be changed to stressed and distressed corporate credit.”