All Sides Covered: Small Cap Strategy Expands LBC Credit Partners’ Reach

The first of LBC’s two investment strategies is the original LBC Credit Partners, which prefers to invest amounts in the $15 million to $150 million range. The second strategy is LBC Small Cap, which invests in the $4 million to $15 million range. As a result, LBC can partner with companies throughout the middle market.

“We try to work with our fund LP base as much as possible for revolvers and first out/last out opportunities because we’re really not set up to provide larger revolvers, especially if it’s an actively used revolver. We like to bring in our LPs to provide the revolver,” Don Rice, a partner at LBC Small Cap, says. “And if it’s a first out/last out opportunity, we bring our LP banks and others in and work with them on that as well.”

Transparency is Key

Throughout his career, Rice has learned that being responsive and transparent is critical in any business relationship.

Rice also says it’s important to be cautious when considering debt levels and to adjust based on the type of industry and equity partner. Rice also maintains a consistent message about the importance of the control equity group in each deal, whether they be funded by private equity groups or independent sponsors.

The Right Time

“Over the years we had talked about the attractiveness of the SBIC market,” Rice says. “It just turned out that it was good timing for us to come together and pursue it.”

“LBC wanted to be effective to their customer base, so as they continued [to] raise larger funds, they couldn’t justify investing in these lower middle market companies,” Rice says. “They didn’t want to be forced to focus on only the larger deals; they wanted to be able to focus on smaller deals as well.”

LBC Small Cap was licensed as an SBIC in 2017 and, according to Rice, had a final fund close in January 2019. Since then, LBC Small Cap has worked harmoniously with LBC Credit Partners, utilizing the firm’s many assets.

The flow of prospective investments from LBC Credit Partners to LBC Small Cap is active with smaller opportunities.

It goes beyond simple deal size, however, with Rice noting that the scale, experience and back-end capabilities of the overall LBC platform give the Small Cap team an abundance of resources, including full-time teams in originations, IT, professional compliance, investor relations, accounting and treasury.

Rice also sits on the investment committee with three of LBC’s founders, ensuring that the Small Cap side of the business has a very experienced investment committee.

Looking for Good Deals

“We want to continue to grow it. We’d like to stay in the market that we’re in because it’s such a good fit with LBC Credit Partners,” Rice says. “We would like to grow our Small Cap lending business through the SBIC.”

“Purchase prices are coming down some, leverage ratios are more realistic and the risk/reward ratio that lenders are receiving is more attractive,” Rice says. “There’s a lot of money on the sidelines. So the competition is always there, especially for good deals.”