Middle Market Direct Lending

Seeks to offer a balance of high current income and downside protection by investing in privately-negotiated, senior-secured loans issued by US middle market companies generally backed by select private equity firms.

Investment advisory services are provided by First Eagle Private Credit, LLC (“First Eagle Private Credit”), which is registered with the SEC as an investment adviser. First Eagle Private Credit is a wholly owned subsidiary of First Eagle Investment Management, LLC (“FEIM”) a SEC registered investment adviser. First Eagle Investment Management, Ltd (“First Eagle”), a wholly owned subsidiary of FEIM, is authorised and regulated by the Financial Conduct Authority of the United Kingdom. FEIM and First Eagle assists First Eagle Private Credit in marketing the advisory services that it offers. To the extent you retain First Eagle Private Credit to manage a separate account on your behalf, please note that FEIM or First Eagle has or may assist in establishing your client relationship with First Eagle Private Credit. FEIM or First Eagle has contacted you on behalf of First Eagle Private Credit for referral as a prospective client.

Philosophy

The Private Credit team believes that a consistent investment strategy focused on direct lending in the U.S. middle market can provide differentiated investment returns with strong downside protection. The team’s investment strategy emphasizes diversification and focuses on floating-rate, senior secured loans issued by mid-sized, US-based companies backed by private equity firms. The floating rate characteristics of loans provide a natural buffer against inflation and rising rates, while a focus on 1st lien senior debt and portfolio diversification helps to limit downside risk. The investment strategy also intentionally favors loans to middle market companies that are controlled by private equity firms, where we believe lenders may benefit from several important factors, including access to additional operational and financial resources, as well as the active role played by financial sponsors in the strategic management of portfolio companies. As a result, the team believes that potential outperformance in this asset class results from a combination of investment focus, proprietary deal sourcing, careful portfolio construction with credit selection based on fundamental bottom-up credit analysis, and active credit management in privately-negotiated credit investments. 

Investment Process

The Team has employed a consistent approach to credit investing since its formation in 2004. They seek to identify opportunities to invest in privately-negotiated loans issued by companies being acquired by a select group of private equity firms. The process is designed to support the Private Credit team’s dual mission of providing reliable and flexible financing options to private equity-backed companies, while also generating consistent, attractive investment performance for investors. To do that, the investment process emphasizes direct origination and credit selectivity based on fundamental credit analysis and careful portfolio construction.

  • 1

    Direct Origination

    The team generally sources investment opportunities directly from private equity firms with middle market investment strategies. As a result, the team is typically involved with private equity firms early in their investment and bidding process and has significant input into deal terms. They also have access to primary due diligence information developed in connection with the deal sponsor’s investment, enabling them to better understand business models, risks and enterprise value. Experienced originators partner with our industry-focused portfolio managers to screen opportunities with an independent assessment informed by well-developed sector views.

  • 2

    Fundamental Credit Analysis

    The team emphasizes bottom-up fundamental credit analysis based on detailed financial analyses and comprehensive due diligence investigations. Diligence activities and related credit analyses focus on borrowers’ capacity and willingness to meet obligations. To understand this, our team focuses on key business risks and sources of repayment through a range of forecast scenarios, which strongly influence their views on key transaction terms, including covenants and other important lender protections.

  • 3

    Portfolio Construction

    The team has the flexibility to invest across a range of asset types and industry sectors, but believes that, in most market conditions, a diversified portfolio of 1st lien, senior secured loans offers the best risk-adjusted return potential and greatest “margin of safety” relative to other credit investment alternatives. As a result, the team emphasizes traditional senior debt and portfolio diversification, resisting the temptation to over-weight single issuer positions and industry concentrations. The team will also purposely underweight sectors even when favored by the market, if they have a negative research view or lack the expertise to recognize risks. The investment team also favors pairing conservative asset strategies with moderate leverage in an effort to generate target returns versus reaching for asset-level yields.

  • 4

    Active Performance Monitoring and Management

    The team receives monthly financial reporting from most portfolio companies and actively monitors actual performance against projected results as well as any developments in borrowers’ businesses or industries that could affect future performance. The team also monitors compliance with transaction terms, including financial covenants as well as other lender protections that may limit certain actions such as incurrence of other debt, payment of dividends and acquisitions.

Competitive Advantages

  • Conservative and disciplined investment approach seeking downside protection and preservation of purchasing power
  • Time-tested, consistent investment style with demonstrated long-term performance over 14+ years
  • Experience and continuity of core investment team
  • Extensive origination network with deep relationships established over decades
  • Recurring business from more than 100 private equity firms
  • Established reputation among private equity community as a trusted financial partner with a reliable, value-added approach

Important Risk Information

Alternative investments can be speculative and are not suitable for all investors. Investing in alternative investments is only intended for experienced and sophisticated investors who are will­ing and able to bear the high economic risks associated with such an investment. Investors should carefully review and consider potential risks before investing. Certain of these risks include:

  • Loss of all or a substantial portion of the investment;
  • Lack of liquidity in that there may be no secondary market for interest in the strategy and none is expected to develop;
  • Volatility of returns;
  • Interest rate risk;
  • Restrictions on transferring interests in a private investment strategy;
  • Potential lack of diversification and resulting higher risk due to concentration within one of more sectors, industries, countries or regions;
  • Absence of information regarding valuations and pricing;
  • Complex tax structures and delays in tax reporting and
  • Less regulation and higher fees than mutual funds.
  • Use of leverage which magnifies the potential for gain or loss on amounts invested and is generally considered a speculative investment technique and increases the risks associated with investing in the strategy.
  • Carried interest which may cause the strategy to make more speculative, higher risk investments that would be the case in absence of such arrangements.
  • Below investment-grade loans which may default and adversely affect returns

Any herein information does not constitute an offer or commitment of any kind.

First Eagle defines "margin of safety" as the difference between a company's market price and our estimate of its intrinsic value. An investment made with a margin of safety is no guarantee against loss.

For more information about the Middle Market Direct Lending Strategy, please contact your relationship manager or Doug Meyer at 212.698.3013.


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Head of Institutional

Doug Meyer, CFA
doug.meyer@feim.com
212.698.3013

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