Private credit investor HPS puts $5 billion to work in sell-off

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Credit firm HPS Investment Partners has committed nearly $5 billion to private debt opportunities since mid-March amid volatility caused by the Covid-19 pandemic.

About $300 million of that snapped up credits in the secondary leveraged loan market, according to Mike Patterson, a governing partner at the firm. The move came as loan prices plunged to their lowest level on average in more than a decade.

“A lot of that was the baby being thrown out with the bathwater, where good quality companies were selling at about 83 cents on the dollar,” Patterson said in an interview. “That opportunity is now over for the time being.”

HPS committed the rest of the capital to the $812 billion private credit market. Cash-flush alternative lenders often step in during times of volatility to provide funding to companies when liquid debt markets are less receptive.

“We’ve done investments where the companies are not in the eye of the storm from a Covid perspective, where we are achieving double-digit yields, with 4.5 times debt to Ebitda and covenant-heavy deals,” Patterson said.

HPS, which had about $61 billion in assets under management as of April, is seeing some of the best opportunities in the health care and software industries, according to Patterson. The firm recently provided a $500 million loan to direct-to-consumer oral care company SmileDirectClub Inc.

“In the private markets, we are looking at supporting businesses that have a strong five or six year outlook or an interesting franchise,” Patterson said.

HPS, founded in 2007, was originally formed as a division of Highbridge Capital Management within JPMorgan Asset Management. The firm manages strategies including syndicated leveraged loans, high-yield bonds, privately negotiated senior secured debt, mezzanine investments, asset-based leasing and private equity, according to its website.

Bloomberg News