Solar Capital acquired a majority stake in Kingsbridge Holdings from TZP Capital Partners and its affiliates and the Kingsbridge management team. Kingsbridge, based in Lake Forest, IL, is an independent lessor of information technology, industrial, healthcare and commercial essential-use equipment.
With the acquisition, Solar Capital will have invested approximately $216 million, in a combination of approximately $136 million of equity and $80 million of debt, to acquire 87.5% of Kingsbridge in partnership with the Kingsbridge management team, which is rolling a portion of its equity ownership as part of the transaction.
The addition of Kingsbridge expands Solar Capital’s specialty finance platform. Solar Capital directly sources and underwrites cash flow loans, asset-based loans, life science loans and equipment financings, and now lease transactions with primarily investment grade rated counterparties. Pro forma for the Kingsbridge acquisition, approximately 84% of Solar Capital’s portfolio would have been composed of specialty finance investments at Sept. 30, 2020.
Kingsbridge was founded in 2006 and has underwritten more than $1 billion of leases since inception. At Sept. 30, 2020, Kingsbridge’s portfolio of leases totaled approximately $440 million, with an average funded exposure of approximately $850,000 per obligor, and was 100% performing. More than 70% of Kingsbridge’s portfolio is invested in assets leased by investment grade borrowers.
Kingsbridge is expected to distribute substantially all of its net earnings on a quarterly basis. Solar Capital Partners, Solar Capital’s investment advisor, anticipates the investment in Kingsbridge will generate a blended cash yield of 10% to 11% on average, consistent with SCP’s existing specialty finance strategies. Solar Capital’s debt and equity investments in Kingsbridge are expected to generate approximately $20 million of gross income in 2021. These investments also are expected to be classified as qualifying assets for Solar Capital. The acquisition is being funded with available capacity under Solar Capital’s revolving credit facility, which currently carries an approximate marginal effective interest rate of 2%. Pro forma for the acquisition and based on the funded debt balance at Sept. 30, 2020, Solar Capital’s leverage would have been 0.77x debt-to-equity.
“This acquisition furthers Solar Capital’s strategy of adding unique finance businesses to the platform,” Mitch Soiefer, partner and head of lender finance at SCP, said. “During our two year loan investment in Kingsbridge, we gained a deep understanding of the business and developed a good relationship with its phenomenal management team. We were able to see firsthand its strong track record, which has continued through the COVID-19 crisis.”
“Kingsbridge’s business model of providing leases for mission critical equipment complements our existing leasing business while providing Solar Capital with exposure to a new predominantly investment grade customer base,” Cedric Henley, partner and chief risk officer of specialty finance for SCP, said. “Additionally, their sourcing capabilities enhance Solar Capital’s ability to originate investments across multiple business lines in order to find the best risk reward while increasing the earnings power of the company’s portfolio.”
“We are excited about the opportunity to expand Kingsbridge’s relationship with Solar Capital and the growth opportunities our partnership provides the Kingsbridge platform going forward,” Dan Flagstad, co-founder and co-CEO of Kingsbridge, said. “Solar Capital’s stable, long-term funding will enhance Kingsbridge’s ability to provide innovative financing solutions to its clients.”
