KKR Invests $75M in A10 Capital

A10 Capital CEO Jerry Dunn

BOISE, ID—Locally-based middle market lender A10 Capital has closed on a $75 million investment from the New York City-based private equity company KKR & Co. A10 plans to use the capital to invest in further growth of the company and its products, CEO Jerry Dunn told GlobeSt.com. “This investment solidifies our already-strong capital base,” he said. Last September, A10 Capital received a significant follow-on investment from BlackRock and THL Credit. A10 used that second round, the amount of which was undisclosed, to expand its loan origination platform and grow its on-balance sheet loan portfolio. This new capital infusion is very timely for A10, which has been experiencing an uptick in demand for its fixed-rate long-term loan product for several months now. A Volatile Landscape The volatility in the global equity markets has, as it always does, had an impact on CMBS pricing. Borrowers that want certainty as they close deals won’t find it in the conduit market these days. So they are turning to bridge lenders like A10. In an earlier interview with GlobeSt.com, Dunn told of new clients of the firm’s that had been abandoned by their previous lenders late in a transaction.  “Typically they were under application with a lender and for whatever reason the lender decided it couldn’t or wouldn’t deliver. It had a change of heart, perhaps,” he says. This demand for middle market product, incidentally, did not begin with this current cycle of volatility. Companies discovered a few years ago that this capital is more flexible as the lenders are not unduly regulated. KKR’s Dev Gopalan, head of US Private Credit said as much when announcing the investment in A10. A10, Gopalan said,  “is positioned to be an effective nonbank CRE lender, able to compete with bank, CMBS, and life company lenders at time when they are being significantly and adversely impacted by new financial regulation.” Hence, we hear success stories like Los Angeles-based Thorofare Capital’s, which reported at the end of January that it has originated $54 million in bridge financing through its Thorofare Asset Based Lending Fund IV. The fund launched at the end of October 2015, and is already ahead of schedule. Also, liquidity in this space has grown as new entrants try their hand at the market. From the existing lenders’ perspective, this is not always a welcome development. Felix Gutnikov, EVP of origination at Thorofare Capital, told GlobeSt.com when the company’s origination numbers were announced, that the entrance of new lenders into the space has been a challenge for the firm. “We definitely see it as a challenge. Some of the newer platforms, coming into the market, are underwriting very aggressively because they want to quickly gain market share,” he said. “We are trying to stick to fundamentals and underwrite creatively yet prudently, and that is harder to do when there is hot money coming in.” Which brings us back to KKR and Blackrock and their reasons for investing in the space. Simply put, the yields have been quite respectable and for institutional capital seeking a safe haven it doesn’t get much better than that.  Private equity companies,  as well, like to stay away from volatility when they can.