HedgeCo.Net — Tree Line Capital Partners, a San Francisco-based direct lender to the U.S. lower middle market, has closed a $680 million continuation vehicle, with PGIM and LGT Capital Partners acting as co-lead investors, the firms announced on October 28.
The vehicle gives existing investors across several Tree Line direct lending funds the option to take liquidity, while Tree Line keeps managing the portfolio. It acquired a seasoned book made up primarily of senior secured, first-lien loans to more than 60 U.S. lower-middle-market companies across a range of industries, backed by a diverse group of private equity sponsors.
For PGIM, the deal follows its announcement earlier this year that it would expand into private credit secondaries, with plans to deploy up to $1 billion over two years in GP- and LP-led transactions across direct lending and opportunistic credit. Alex Stuart, PGIM’s head of private credit secondaries, said continuation vehicles are gaining traction across a broader range of portfolio sizes, including mid- and small-cap credit.
LGT Capital Partners, which has invested in credit secondaries since 2009, said it underwrote the portfolio credit by credit. Campbell Lutyens served as financial adviser on the transaction, and Morgan, Lewis & Bockius advised PGIM.
The transaction adds to a fast-growing list of credit continuation vehicles, a tool that only recently migrated from private equity to private credit. As direct lending funds from the last cycle approach the end of their terms, GP-led secondaries offer managers a way to return cash to LPs without selling performing loans into the market, and give secondaries buyers diversified, seasoned exposure at a negotiated price.