June 22, 2020 / 11:41 PM / 16 days ago

CORRECTED-Dyal Capital to borrow against fund investments to pay out windfall, source says

(Corrects owner of Dyal in paragraph 4 to Neuberger Berman Group LLC)

By Joshua Franklin

June 22 (Reuters) - Dyal Capital Partners is nearing a $1 billion loan against the fee revenue of private equity firms in which it has acquired stakes and will use the proceeds to return cash to its investors, a person familiar with the matter said on Monday.

The loan pertains to investments made out of the firm’s $5.3 billion Dyal Capital Partners III fund, the source said. While private equity firms often borrow against companies they own to fund dividends to their investors, such borrowing at fund level is less common.

The loan has an “A-“ credit rating, according to the source, underscoring the confidence of lenders that it will be paid back in the face of economic uncertainty brought about by the COVID-19 pandemic.

Dyal, a subsidiary of asset manager Neuberger Berman Group LLC, owns stakes in major private equity firms such as Silver Lake and Vista Equity Partners. It had initially looked to raise $500 million, but increased the size of the loan due to strong investor interest, primarily from large insurers, the source said. The loan carries a 4.4% fixed coupon and is expected to close on Tuesday.

A spokesman for Neuberger Berman declined to comment.

Unlike most private equity fund managers, Dyal acquires stakes in private equity firms rather than companies. It returns money to its investors through fee income earned from these fund investments, rather than by selling assets.

The loan will take the total amount returned to investors in Dyal Capital Partners III to just over 60%, the source said, requesting anonymity because the matter is private. (Reporting by Joshua Franklin in New York; editing by Jane Wardell)

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