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Abu Dhabi backs $5bn fund for North American firms

Abu Dhabi North American fund Reuters/Dado Ruvic

Wells Fargo is teaming up with private equity firm Centerbridge Partners to launch a fund with a capacity to lend more than $5 billion to North American middle-market companies, the groups said on Tuesday.

The move highlights the increasing intertwining of private capital providers and traditional banks in offering credit to companies and consumers since the global financial crisis, as heightened regulation and cost have forced banks to reevaluate the types of loans and services they provide.

Centerbridge and investors including the Abu Dhabi Investment Authority and British Columbia Investment Management Corporation will provide the cash for the direct-lending fund, named Overland Advisors.

For Wells Fargo, also a minority investor in the venture, it can offer the loans to existing customers as an alternative to other financing options.

The loans will likely go toward major initiatives such as financing acquisitions or buying out shareholders, David Marks, executive vice president at Wells Fargo Commercial Banking, said in an interview.

“It is all part of being more strategic to our clients over the long term,” Marks said, noting the collaboration had been under discussion for more than a year.

Loans would be offered to businesses which have earnings before interest, tax, depreciation and amortisation (Ebitda) ranging between $25 million to more than $100 million, and would be structured as senior secured debt, per a regulatory filing.

“We knew that if you could marry Wells Fargo’s network and its sourcing engine with an experienced private credit investor like ourselves, you would create something special,” Centerbridge co-founder Jeff Aronson said.

Loans from direct-lending funds often carry a higher interest rate than traditional bank debt, making it attractive for private capital providers. However, as credit conditions have tightened, and interest rates have risen, banks have also been seeking ways into the market.

JPMorgan Chase & Co this year entered the direct lending business by setting aside at least $10 billion, Reuters reported, citing a person with knowledge of the matter.