CPP Investment Board executives say Antares Capital — part of the General Electric financial services arm GE Capital — has 20 per cent share of a stable U.S. lending sector worth an estimated US$96 billion a year.
"So when Antares came up for sale, we realized that this was a very interesting time for use to access a very attractive part of the credit market," said Mark Jenkins, global head of private investments for CPPIB.
"It's across multiple industries, multiple regions across the United States."
Over the past five years, Antares has provided more than US$120 billion in financing to pensions, endowment funds and other private equity managers that invest in U.S. "middle market" companies with up to $100 million of annual earnings.
CPPIB has been attracted to the U.S. middle market — which would be served by commercial banks in most countries, including Canada — by the structure of the loans, the lower loss rates and a stable customer base, Jenkins said.
Part of the reason the business has been very resilient through the ups and downs of the economic cycle is the relatively short duration of the loan agreements.
"These loans, on average, will mature after four years or be refinanced. So you're constantly replenishing that loan book at different times through the cycle and you can adjust pricing."
The Toronto-based fund manager will spend $3.85 billion to buy 100 per cent ownership of Antares Capital from GE Capital. The rest of the $12-billion transaction is in the form of new debt from a syndicate of global banks that will be used to run the business, Jenkins said.
Jenkins wouldn't reveal what rate of return CPPIB expects from the Antares investment but said it's in line with the overall investment portfolio on a risk-adjusted basis.
The CPP Investment Board oversees about $264.6 billion of assets on behalf of the Canada Pension Plan, which is funded by employee and employer contributions. The CPPIB invests surpluses that will eventually be used to supplement retirement payments for about 18 million contributors and beneficiaries.
General Electric said earlier this year it plans sell most of the assets of its GE Capital financial arm over the next 18 months, but planned to keep components that relate to its industrial businesses.
In its announcement from Fairfield, Conn., GE Capital said it will provide time for CPP Investment Board to work towards forging relationships with two partners of its U.S. Sponsor Finance business — which is primarily made up of Antares Capital.
Jenkins said CPPIB is willing to negotiate but the outcome won't affect its purchase of Antares.
The deal is expected to close in the third quarter, subject to regulatory approvals.
— Follow @DavidPaddon on Twitter