Credit Suisse and USS announce Middle Market Fund Financing Collaboration

This collaboration has been seeded with a USD3.1 billion portfolio of outstanding loans to a diversified portfolio of specialist direct lending funds originated by Credit Suisse over the course of H2 2014 and FY 2015, each of which is secured by an underlying portfolio of loans to medium-sized European companies.

The collaboration was signed with the USS entities purchasing a majority interest in the loans in the seed portfolio and Credit Suisse retaining a minority economic interest in its Global Markets (GM) division (the “Transaction”). In addition, USS has procured ongoing risk management and origination services from Credit Suisse in connection with this transaction.

Credit Suisse originally moved the loan portfolio from GM to its Strategic Resolution Unit (SRU) at the end of the first half of 2016 as part of a strategy to reduce capital usage in its investment bank. The Transaction offers an attractive exit from this portfolio for the SRU, while also enabling the bank to maintain a strategic presence in this market alongside USS which is an experienced long-term investor in private credit. Importantly, the Transaction offers continuity of service and access to an institutional pool of longer-term flexible capital to the fund managers holding the loans.

The collaboration marks the first time a UK pension fund has partnered with an investment bank to provide senior portfolio financing on this scale to the growing middle-market sub-sector. Credit Suisse expects to originate new loans to direct lending funds from the first half of 2017.

As part of the collaboration, Credit Suisse’s market-leading fund finance team will provide a range of services to the USS entities including loan servicing, credit monitoring, structuring and the origination of new financing facilities. Credit Suisse anticipates that other institutional investors will seek to join this collaboration with USS, providing the asset managers with access to a diversified pool of long-term institutional capital. These new institutional investors will have the same opportunity as USS to acquire services from the Credit Suisse team.

Mike Powell, Head of Private Markets Group at USS Investment Management, said;

“We are very pleased to have partnered with Credit Suisse in this innovative landmark transaction and look forward to continuing to develop our relationship with the bank.”

Ben Levenstein, Head of Private Credit and Special Situations at USS Investment Management said;

“This transaction gives USS exposure to top-tier private credit managers through a high-quality portfolio of loans delivering an attractive risk-adjusted cash flow for the benefit of our members. USS’ Private Credit Strategy continues to look for innovative solutions to access return premia above those available in public markets.”

For Credit Suisse, the collaboration represents an innovative step in the process of adapting its GM business model to consume less balance sheet capital and produce more stable earnings from fee-based, client-driven activities. For USS, the collaboration expands its growing illiquid credit allocation while benefiting from the services procured from an aligned lender in CS.

Jonathan Moore, Co-Head of Global Credit Products in EMEA at Credit Suisse, said:

“We are delighted to announce this mutually-beneficial arrangement between CS and USS. For CS, this enables us to evolve our market leading structuring, analytical, origination and servicing capabilities in this asset class.”

“At the same time, it allows us to retain exposure to a business which interfaces with our most important private equity and credit asset manager clients while generating attractive returns on the capital deployed.”