🏦 💉 KKR $5 Billion Strategic Acquisition

[4 Minutes Read] Plus Miami $419 Million Mega Mixed-Use Makeover

Author

Bridge Loan Guy
February 20, 2024

Good Morning TIM Enthusiasts

Last week's financial landscape was a testament to the vibrant activity across CRE, ABL, and Growth Capital sectors, showcasing a blend of strategic foresight and cautious optimism. High-profile refis like Florida East Coast Realty's $420M loan for Miami's Panorama Tower and Goldman Sachs' $395M for Manhattan’s 70 Pine Street led the charge in CRE, highlighting lenders' confidence in premium assets. Meanwhile, in ABL, East West Bank and Gordon Brothers executed notable deals, extending a $7.5M credit line to a global entertainment company and a $5M lease to an aerospace defense provider, respectively. Growth Capital saw JPMorgan and Goldman Sachs initiate a colossal $5 billion loan for KKR’s acquisition of Cotiviti and Aircastle's increase of its credit facility to $2.1 billion. However, the shadow of defaults loomed with significant judgments against merchant cash advance companies and notable Chapter 11 filings, reminding us of the ever-present risks. As we navigate these developments, it's crucial to discern who's capitalizing on opportunities, who's navigating challenges, and who's recalibrating strategies in this complex financial dance........in just 4 minutes!

Let’s get into it.


Top Weekly CRE Deals


Summary
Last week, we saw an exhilarating whirlwind in the CRE financing landscape, characterized by notable deals that speak volumes about the current market dynamics. At the forefront, Florida East Coast Realty's $419.6 million refinancing package for Miami's iconic Panorama Tower underscored the robust appetite for mixed-use developments in prime locations. This was closely followed by the $395 million refinancing for 70 Pine Street in New York, a testament to the enduring allure of luxury residential conversions. Meanwhile, Hudson Valley Property Group's $208 million acquisition financing highlighted the increasing momentum in the affordable housing sector. Other notable transactions included TPG's $79 million refinancing in Washington and Artimus NYC's $90.25 million for a Brooklyn mixed-use development, reflecting a solid interest in development deals driven by persistent rental housing demand. Activity was particularly vibrant in cities like Miami, Florida, and New York, NY, signaling a bullish outlook among lenders for strategic investments in these areas. Lenders are zooming in on borrowers with solid track records and projects that promise sustainable growth, particularly in mixed-use, luxury residential, and affordable housing sectors.

Based on activity, loan restructuring, and average loan size, the top lenders and arrangers were JPMorgan and JLL. Regarding overall capital purpose trends, property refinancings represented the most predominant category at over 50% of the transactions cited. Multiple lenders accommodated owners' requests to recapitalize stabilized assets and extract equity, pointing to peak prices and abundant liquidity in debt markets. Construction financing, often tied to residential developments, was the next most common loan purpose at 20% of deals highlighted. This shows lender openness to bankrolling new multifamily buildings aligned with still constructive occupancy and rent outlooks rooted in favorable demographic demand drivers.

Key Insights


🔑 Top Strategies:
CRE Lenders:
1) Focus on marquee assets with strong sponsors in core markets like New York City.
2) Allocate funds to subsidized affordable housing in high-demand, low-supply markets. This strategy ensures stable returns and aligns with ESG goals.
3) Capitalize on unique financing needs bypassed by traditional banks, such as affordable housing projects in Brooklyn, offering higher returns for non-bank lenders due to less competition and favorable terms.

CRE Developers:
1) Focus on revitalizing distressed or poorly managed office and hotel properties in key urban areas.
2) Invest in workforce housing in government-support markets where buying and rehabbing affordable units can yield stable cash flows.
3) Explore opportunities in transitional properties in areas like Brooklyn, where traditional banks are hesitant.

CRE Investors:
1) Invest in new developments or joint ventures with pre-leased commercial spaces, like those in Miami, to mitigate lease-up risks and capitalize on growth in top submarkets.
2) Target affordable housing in areas with limited supply, where high occupancy and government subsidies ensure stable returns.
3) Offer bridge equity for projects needing stabilization, like a Brooklyn development awaiting occupancy.

CRE Brokers:
1) Target high-profile property owners in prime locations facing liquidity needs or lease renewals, like in Lower Manhattan.
2) Advise on affordable housing portfolios nearing subsidy expiration in markets like D.C., aligning sale or refinance strategies in maintaining affordability.
3) Connect owners with investors looking for strategic redevelopment opportunities like land under Brooklyn developments.


Top Weekly ABL and Growth Capital Deals

  • JP Morgan and Goldman Sachs initiated a $5B loan for KKR's acquisition of Cotiviti.

  • KKR and Oak Hill spearhead a $2.8 billion loan to acquire Safe Fleet.

  • MB2 Dental secures a $2.344 billion unitranche debt facility with KKR's backing.

  • Aircastle boosts its revolving credit capabilities to $2.1B, supported by Citibank, Fifth Third Bank, and a consortium of lenders.

  • Citizens Bank orchestrates a $377.5M credit facility for Arlington Capital Partners.

  • Northleaf champions a $75 million loan to bolster Duetti's financial structure.

  • Clarus Capital leads a strategic $55M loan upsizing for a prominent business services provider.

  • MidCap Financial finalizes a $35M senior revolving credit facility for Arc.

  • Potbelly enhances its financial agility with a $30M credit facility from Wintrust.

  • Huntington Business Credit closes a $13M credit facility with C&K Industrial Services.

  • East West Bank broadens Cineverse’s financial horizon with a $7.5M line of credit.

  • Gordon Brothers extends a $5M operating lease to an aerospace and defense solutions provider.

  • SAB Capital executes a $5M industrial sale-leaseback.

  • Republic Business Credit furnishes an apparel company with a $4M loan.

  • Gateway Trade Funding boosts a hardware and software company with a $2.8M PO facility.

  • Rosenthal finalizes a $2M factoring loan with a logistics company based in New Jersey.

  • SLR Digital Finance secures a $2 million revolving credit facility for a mobile media & ad tech firm.


Insight Summary

This past week, the business landscape buzzed with large leveraged buyouts (LBOs) and mergers and acquisitions (M&As), seeing a tight race between private equity giants and banking institutions eager to back these deals. In a notable move, KKR clinched a $10.5 billion deal to take Cotiviti private, backed by a whopping $5 billion in debt financing orchestrated by JPMorgan and Goldman Sachs. Meanwhile, Clarience Technologies' strategic acquisition of Safe Fleet was supported by a $2.775 billion loan from KKR and Oak Hill Advisors. Arlington Capital Partners launched Keel Holdings through a $377.5 million credit arrangement facilitated by Citizens. New York and Dallas and the broader healthcare, automotive safety, and dental service sectors saw the most activity, revealing a pattern where innovation, strategic acquisitions, and growth financing converge.

KKR emerged as this week's standout lender, not just as a private equity sponsor behind the $10.5 billion Cotiviti privatization but also as a financier pivotal to several major transactions. The average loan size hovered around $385 million, with refinancing efforts dominating the landscape as companies rush to secure favorable rates ahead of potential market downturns, alongside keen anticipation for a surge in M&A activities.

Key Insights


💡 Top Strategies:
ABL/GC Lenders:
1) Offer working capital financing to swimwear and seasonal apparel wholesalers.
2) Provide equipment financing to aerospace and defense manufacturers with substantial contracts, especially when defense sector demand escalates.
3) Invest in credit facilities for music streaming royalty platforms acquiring artist catalogs.

Family Office Firms:
1) Invest in music royalty platforms to acquire rights, offering stable cash flows and exposure to the music streaming sector as a long-term investment.
2) Support roll-up strategies in sectors with strong growth prospects, enabling consolidation in the defense manufacturing sector.
3) Invest alongside sector experts in niche software providers.

Private Equity Firms:
1) Focus on consolidating fragmented industries, similar to Arlington Capital's strategy with Keel Holding.
2) Invest in niches experiencing digitization, exemplified by Duetti's entry into music royalty monetization.
3) Concentrate on sectors with recurring revenue and potential for growth that large players do not yet dominate.

Commercial Finance Brokers:
1) Target music streaming platforms raising capital to acquire content catalogs.
2) Pursue manufacturers winning essential aerospace and defense contracts needing equipment financing.
3) Scope out niche seasonal wholesalers requiring inventory financing heading into peak demand cycles.

New Lenders & Mergers

  • Better rolls out a dedicated VA loan program, streamlining homeownership for veterans.

😲 Didn’t see that one coming

  • New York AG clinches a $77M judgment against merchant cash advance firms Read.

  • FTC wins a $20.3M judgment in a case involving merchant cash advance operations Read.

  • Aspiring New Yorker Hotel proprietor faces indictment over fraud Read.

  • Sientra announces a strategic sale initiative through a voluntary Chapter 11 process Read.

  • Robertshaw opts for Chapter 11, and a restructuring support pact Read.

  • Lender initiates foreclosure on a $156M loan connected to the Portals Office Building Read.

  • Starwood and Artisan Ventures fail to pay on a $84.8M L.A. office loan, defaulting Read.

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