Rothschild and Cohen back 1bn euro lender

Lord Rothschild, Sir Ronald Cohen and the Australian sovereign wealth fund have committed to invest €450m (£375m) in the largest lending start-up since the financial crisis –offering hope to cash-starved businesses struggling to get credit.

By Philip Aldrick
The Telegraph, 04 Sep 2010

Sir Ronald Cohen

The two financiers and the Future Fund are backing Haymarket Financial (HayFin), a specialist lender to medium-sized businesses. The commitments take the total capital invested in the company to €1bn, making it the most significant new entrant in the banking sector to date.

A raft of new banks is being set up, but they are small by comparison. Virgin Money is valued at around £500m, Walton & Co hopes to raise about £100m, Metro Bank has two branches, and NBNK Investments, which plans to buy assets from the part-nationalised lenders and is chaired by Lord Levene, has raised £50m so far.

Unlike other start-ups, HayFin is not planning to lend to the general public but to businesses with an enterprise value – the value of the debt and equity – of €100m-€500m (£84m-£417m). Companies of that size are too small to tap the bond markets, so are dependant on bank credit.

Credit for businesses has been contracting sharply since the crisis began. Some £62.6bn of bank lending has been withdrawn from companies since January last year, according to the Bank of England, which has warned that "the persistence of tight credit conditions" threatens the recovery.

HayFin expects to operate with about "three times leverage", chief executive Tim Flynn said, meaning that it would have €3bn of new money at its disposal. Around three quarters of its lending is being deployed in the UK, translating to a potential €2.25bn new credit line for mid-sized UK businesses.

The Government has been looking at ways of ensuring smaller companies have access to finance to grow, establishing the Enterprise Finance Guarantee and the Growth Capital Fund. Mr Flynn, 48, one of a number of former Goldman Sachs partners at the firm, said: "There has been a lot of discussion about the funding gap in the middle market. We are an example of a private sector solution."

Lord Rothschild, one the country's most influential and successful bankers with a fortune of £390m according to The Sunday Times Rich List, is investing his own money and that of his family's charities. Sir Ronald, the founder of private equity giant Apax Partners who is worth £200m, is also investing his personal wealth.

Neither is disclosing exactly how much they are committing. HayFin's main backer is TowerBrook, a leading private equity firm set up by Ramez Sousou – a former right-hand man to legendary hedge fund manager, George Soros.

Two Canadian pension funds, the Public Sector Pension Investment Board and the Omers Administration Corporation, and private investors Richard Hayden, a former deputy chairman of Goldman Sachs, and Simon Palley, an ex-head of private equity group BC Partners, make up the rest of the "founding shareholders", who have committed €1bn in total.

The presence of such heavyweight investors in a business that intends to do "plain vanilla lending" for mid-sized UK and European companies will be a boon to businesses by encouraging rivals to follow suit. A number of smaller peers are moving into the corporate lending market, such as the similarly private equity-backed Aldermore.

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