Aflac Buys Stake in Direct Lender Varagon in Bet on Private Debt
Aflac Buys Stake in Direct Lender Varagon in Bet on Private Debt
(Bloomberg) -- Aflac Inc.’s asset management arm has agreed to take a minority stake in direct lender Varagon Capital Partners as the insurer looks to capitalize on the booming world of private credit.
The unit is acquiring the stake from former and current partners and affiliates of Oak Hill Capital, Varagon said in a statement Wednesday. Terms of the deal weren’t disclosed. Aflac Global Investments will also build a middle market loan portfolio of up to $3 billion over multiple years for the insurer.
“We see this as the natural evolution of Varagon,” Chief Executive Officer Walter Owens said in an interview. “When you look at the market, direct lenders require large hold sizes and it’s very much in alignment with our strategy of being a direct lead lender of size and scale.”
Insurers have been pouring money into private debt in recent years, helping it grow into an $800 billion asset class. Direct loans are typically illiquid, making them appealing to buy-and-hold investors with long time horizons. In a recent survey of managers overseeing nearly $400 billion in private-debt strategies, 80% expected allocations from insurance companies to increase in the coming years.
American International Group Inc., which has been an anchor investor in Varagon since 2014, will continue its partnership with the firm and hold an ownership stake the same size as Aflac’s, according to the statement.
Varagon, a New York-based lender to companies with $10 million to $75 million in Ebitda, will keep operating as an independent company. The firm will continue to focus on non-cyclical sectors and strong investor protections amid borrower-friendly conditions in credit markets.
“By historical norms, we’re in aggressive conditions in terms of pricing and structure, but we see strong opportunity in the middle market,” Owens said. “We’re looking to invest in companies that are market leaders in recession-resilient sectors and have defensible business models supported by attractive cash flow profiles, quality management teams and leading sponsors with strong track records.”
The deal is expected to close in the first three months of 2020. Rothschild & Co. served as Aflac’s financial adviser and Debevoise & Plimpton LLP provided legal advice. Wells Fargo & Co. was Varagon’s financial adviser, with Davis Polk & Wardwell LLP as legal adviser. AIG received legal representation from Cadwalader Wickersham & Taft LLP.
To contact the reporter on this story: Kelsey Butler in New York at kbutler55@bloomberg.net
To contact the editors responsible for this story: Natalie Harrison at nharrison73@bloomberg.net, Claire Boston, Adam Cataldo
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