In an interview with LCD, Alphonse Lordo, Partner at Content Partners Capital, shared his thoughts on how potential changes to leveraged lending guidelines might affect private credit firms and how ABL financing is a niche for steady deal flow.
Content Partners Capital (CPC) is the private credit arm of Content Partners, which provides liquidity solutions to owners of media and entertainment assets. CPC provides financing capital to middle market companies with a focus on Intellectual Property (IP) assets.
The following interview has been edited and condensed for clarity.
PitchBook LCD: What might the impact be in the market from a change to leveraged loan guidance? Do you see private credit as more of an ally, or will there be increased competition?
Lordo: I think it’s slow burn, increased competition over the near term. If you’re a private credit fund that’s just doing sponsor deals, agnostic to industry, and looking to 5x or 4x leverage, and now a bank can come in, you may get disintermediated; your edge is gone. The ABL moniker allows you to kind of go outside the leverage lending guidelines a bit and look to the asset versus the cash flow of the business.
Our edge is asset-based, IP niche. Because of that, I don’t think we’re going to get disintermediated. Most importantly, we are partners with the banks in our market.
Q: In a general overview, what deals are you seeing, and what is the typical size, leverage, and pricing for Intellectual Property (IP) assets?
Lordo: We look at investments up and down the cap stack, from senior secured deals to second-lien deals, mezz deals, and preferred equity.
There are a handful of banks that focus on the film, TV, and music markets, but they have regulatory standards and frameworks that limit how aggressive they can be in certain areas, so we look to partner with them, or add on to the capital stack and sit behind them, and we’re comfortable with that. Music is its own asset class and a healthy ecosystem; it’s flush with capital. You’ve seen this evolution over the years, starting with streaming and the buildout of the “do-it-yourself” platforms for independent distribution. They have IP and cash flow, and that’s a growth sector within music.
Q: You recently had a deal with Electric Entertainment. Can you share a bit of detail on the terms of that $20 million loan and how it was structured?
Lordo: We provided junior capital behind an existing bank deal to fund growth, because producing content is working-capital-intensive, and Electric Entertainment is a prolific producer of content.
Q: Given the concerns with private credit investments in software, how do IP assets compare from a risk standpoint? And is the market looking for asset-heavy businesses to invest in?
Lordo: We believe IP lending can be one of the best risk-adjusted returns in the marketplace. Not all IP is created equally, but the right deal and IP will produce superior risk-adjusted returns. The moats around the entertainment industry make it hard to build relationships and figure out good management teams and good IP. I don’t think that’s ever going to change.
Featured image by Philippe LEJEANVRE/Getty Images
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