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Direct Lending

Home / Capabilities / Private Markets / Direct Lending

Objective: Securing yield through long-term lending partnerships

"We aim to consistently outperform for our investors by lending to attractive, growing businesses on terms seeking capital preservation and yield capture."

Patrick Marshall, Head of Private Debt and CLOs

Why invest with Hermes?

  • Focused on quality: access to the stable, low-correlated returns offered by senior-secured loans to middle-market businesses in the UK and Europe
  • UK focus, regional scope: concentrating on the UK, the largest and most creditor-friendly lending market in Europe, while retaining the flexibility to invest across the continent.
  • Strong origination: a joint-venture agreement with RBS’s UK corporate lending arm, plus the team’s own contacts in the loan market, provides a consistent flow of high-quality investment opportunities.
  • Experience throughout cycles: the team has an average of 15 years’ experience per member and can successfully structure, execute, monitor and restructure loans.
  • Inflation protection: the coupon payments of senior-secured bonds move in sync with interest rates, preserving value in inflationary periods and providing a base return when rates are low.
  • Enduring opportunity: banks continue to withdraw from the business-lending market, enabling direct lenders to partner with mid-market businesses – a shift supported by European governments.

direct-lending-chart2Resilient returns from the asset class
European senior loans have generated stable returns in the last eight years, despite the financial crisis, with those extended to mid-market companies offering about 55bps more yield than larger loans in recent years.

Source: S&P Capital IQ as at September 2015. Chart shows the performance of first-lien bullet term loans.

This document has been prepared using information which is confidential and proprietary to The Royal Bank of Scotland plc (“RBS”, “we”, “us” and “our”). This document and any dispute arising under or in connection therewith is to be governed by and construed in accordance with English law.  

This document is being issued to you (the “Recipient” or “you” or “your”) by Hermes Investment Management Limited (“Hermes”) solely in connection with your potential investment in a direct lending fund being established by Hermes (the “Specified Purpose”).

RBS and Hermes (the “Institutions”) are separate institutions each acting on their own behalf and not as agent or for the benefit of any other person. Nothing in this material is intended to, or shall be deemed to: (i) establish or represent any partnership or joint venture between the Institutions; (ii) constitute any Institution as the agent of the other Institution; or (iii) constitute any Institution making or entering into any representation, commitment or assurance of any kind for or on behalf of any other Institution.

Any information in this document which relates to or refers to RBS and/or its Financial Sponsors business (“RBS Confidential Information”) is confidential and must not be disclosed in a manner inconsistent with the Specified Purpose. Where you have entered into a confidentiality agreement with Hermes in respect of this document and/or the RBS Confidential Information you must comply at all times with the terms of any such confidentiality agreement(s) and the use restrictions therein.

This document does not constitute an offer or invitation by RBS in respect of the Specified Purpose or any financing or any other sale or purchase of securities. The RBS Confidential Information is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation and must not be reproduced or disclosed (in whole or in part) to any other person without our prior written consent.

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Strategy Information

Target return
LIBOR plus 6% gross annualised
Universe
Senior loans to UK and European mid-market
businesses
− UK exposure: 75%-100% 
− European exposure: 0%-25% 
Eligible instruments
Senior-secured loans: 75%-100% of portfolio
Unitranche loans: 0%-25% of portfolio
Targeted leverage
No strategy leverage
Leverage below 5.5x for senior loans
Capacity
£750m
Base currency
GBP, with hedging on loans denominated in other currencies