Principal® direct lending business reaches $2 billion in borrower commitments

Rhea-AI Summary

Principal Asset Management has achieved a significant milestone, reaching $2 billion in borrower commitments through its direct lending business. The investment team has completed over 115 transactions as of December 31, 2023, and has surpassed $2 billion in total borrower commitments since its inception in July 2020. This achievement reflects the company's long-term strategy of offering flexible financing solutions in the middle market direct lending industry. The team focuses on privately negotiated debt transactions with sponsor-backed and non-sponsored lower and middle-market companies throughout North America, targeting transactions of $25 million to $200 million.

Insights

Market Research Analyst

The announcement from Principal Asset Management concerning their $2 billion milestone in borrower commitments through its direct lending business signifies a robust expansion in their alternative credit offerings. This growth is indicative of a strategic push into the middle market lending space, a segment known for its potential to offer stable returns and diversification away from traditional equity and bond markets. The middle market, typically comprising companies with annual revenues between $10 million and $1 billion, is significant for investors as it often presents less competition and more personalized deal structures compared to larger capital markets.

From a market research perspective, the success of Principal's direct lending team in closing over 115 transactions reflects a strong demand for alternative financing solutions. This is particularly relevant as companies in the lower and core middle market may have limited access to public capital markets or traditional bank financing. The focus on companies with $5 million or more in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) suggests a strategic targeting of financially stable and mature businesses that are likely to manage debt repayments effectively, which could mitigate risk for Principal and its investors.

Financial Analyst

Reaching $2 billion in borrower commitments in a span of less than three years is a significant achievement for Principal's Alternative Credit team, especially considering the volatility in the financial markets in recent years. This milestone could be seen as a positive indicator of the company's financial health and its ability to attract and manage large-scale investments. The hold sizes of $20 million to $50 million per transaction indicate a moderate level of risk-taking, balancing potential returns with the need to diversify and manage exposure.

For stakeholders, the implications are multifaceted. On one hand, the expansion into direct lending may provide Principal with a steady income stream from interest payments, which could contribute positively to their revenue and potentially enhance shareholder value. On the other hand, direct lending carries credit risk, which must be managed effectively to prevent defaults. Stakeholders will be keen on understanding the credit quality of the borrowers and the underwriting standards applied by Principal to ensure the sustainability of this business line.

Economist

The direct lending industry plays a crucial role in the broader economy by providing financing to companies that may not have ready access to traditional lending sources. Principal Asset Management's achievement in surpassing $2 billion in commitments is a testament to the growing role of non-bank financial institutions in the credit market. This trend can be beneficial for economic growth, as it facilitates the flow of capital to businesses that are primed for expansion, but may be underserved by conventional banking channels.

However, an economist would also caution that the growth of alternative credit markets should be monitored for systemic risks. As these markets become larger and more interconnected with the traditional financial system, their impact on financial stability becomes more significant. The economic implications of such a milestone thus extend beyond the company and its stakeholders, potentially influencing the availability of credit and the health of the middle market sector at large.

DES MOINES, Iowa--(BUSINESS WIRE)-- Principal Asset Management^SM announced it has reached $2 billion in borrower commitments through its direct lending business.

Its direct lending investment team, known as Principal Alternative Credit, has now closed on over 115 transactions as of December 31, 2023, and has exceeded $2 billion in total borrower commitments since its inception in July 2020. This milestone represents an important step in the company’s long-term strategic plan of providing flexible financing solutions across the middle market direct lending industry.

"Our strong relationships with a broad group of clients in the lower and core middle market has been key to us achieving the milestone of surpassing $2 billion in commitments,” said Tim Warrick, managing director – alternative credit at Principal Asset Management. “This accomplishment is yet another testament to our mission of providing differentiated financial solutions for our clients.”

The team invests in privately negotiated debt transactions with both sponsor-backed and non-sponsored lower and middle-market companies throughout North America that typically have $5 million or more in EBITDA. It targets transactions of $25 million to $200 million, with a typical hold size of $20 million to $50 million.

Within Principal Asset Management, the alternative credit investment team is comprised of 29 professionals with experience across various sectors, including healthcare, technology/software, financial services, commercial/professional services, industrials, food and beverage and consumer services.

About Principal Asset Management ℠

With public and private market capabilities across all asset classes, Principal Asset Management℠ and its investment specialists look at asset management through a different lens, creating solutions to help deliver client investment objectives. By applying local insights with global perspectives, Principal Asset Management identifies distinct and compelling investment opportunities for more than 1,100 institutional clients in over 80 markets. Principal Asset Management is the global investment solutions business for Principal Financial Group® (Nasdaq: PFG), managing $506.9 billion in assets¹ and recognized as a “Best Places to Work in Money Management”² for 12 consecutive years.

© 2024 Principal Financial Services, Inc.^®, Principal Financial Group^®, and Principal and the logomark design are registered trademarks of Principal Financial Services, Inc., a Principal Financial Group company, in the United States and are trademarks and services marks of Principal Financial Services, Inc., in various countries around the world.

¹ As of September 30, 2023
² Pensions & Investments, “The Best Places to Work in Money Management”, December 12, 2023

View source version on businesswire.com: https://www.businesswire.com/news/home/20240118465816/en/

Erin Parro, 515-878-0130, parro.erin@principal.com

Source: Principal Asset Management

FAQ

What is the total borrower commitment Principal Asset Management has reached through its direct lending business?

Principal Asset Management has reached $2 billion in total borrower commitments through its direct lending business.

How many transactions has the investment team completed as of December 31, 2023?

The investment team has completed over 115 transactions as of December 31, 2023.

When did Principal Alternative Credit start its direct lending business?

Principal Alternative Credit started its direct lending business in July 2020.

What is the typical hold size for transactions targeted by the investment team?

The typical hold size for transactions targeted by the investment team is $20 million to $50 million.