Annual Report 2017

Rothschild & Co | Annual Report 2017

Rothschild Merchant Banking

Private debt

Our private debt activities account for over €4.5 billion of assets under

management and our team comprises 30 investment professionals.

We are active through two different business lines:

• Direct Lending

• Rothschild Credit Management

Witherslack is a leading provider of specialist

education and care for children and young people

with special educational needs. In December 2014

FACS provided a bespoke financing solution to help

fund the company’s growth. This loan was repaid

in August 2017 following the sale of the company.

Having developed a strong relationship with

management, FACS positioned itself as preferred debt

provider for the acquisition by the incoming investor.

Founded in 2006, BFCC is a French dental laboratory

manufacturing prosthesis devices. The company

pioneered the import strategy and now co-leads an

extremely fragmented market with key competitive

advantages built around its cost base and logistic

model. In 2017 FADL backed a private equity investor

for the company’s primary LBO, by providing a

unitranche loan facility.

As for all Merchant Banking initiatives, the affiliation with Rothschild & Co’s other business activities provides significant

market insight and sector knowledge which we believe materially enhance our credit selection processes.

Through our private debt activities, we are able to offer our investors access to both the European mid-size corporate credit

market and the larger, broadly syndicated European and US LBO credit markets. This asset class is currently generating

increased investor demand, as investors look to diversify away from lower-yielding products and traditional fixed-income

products.

Direct Lending

Five Arrows Credit Solutions (FACS)

FACS, the Group’s junior debt fund, closed with €415 million

of commitments in 2014 and is focused on the growing

European direct lending market, originating and structuring

customised junior/subordinated financing solutions for

middle-market companies. The fund supports private equity

sponsor, entrepreneur and family-owned businesses in

a broad range of financing needs, including leveraged

buyouts, expansion and acquisition financings, as well as

recapitalisations and refinancings. The fund has continued

to demonstrate strong deployment momentum during the

year and, as of December 2017, is 93% deployed into 13

transactions with attractive risk-reward propositions. As of

December 2017, the fund has generated a strong cash

yield, having already distributed to investors approx. 0.5x the

capital called and has achieved four successful exits from its

portfolio, each delivering an attractive return (ranging from

13.6% to 28.3% IRR) in excess of the fund’s target.

As at 31 December 2017, the value of the Group’s

investment in FACS represented €28 million.

Five Arrows Direct Lending (FADL)

2017 has seen the launch of FADL, which provides

senior-secured debt to mid-market corporates and builds

on our existing private debt expertise, franchise and track

record to further leverage the potential of the asset class.

The fund is highly complementary to FACS and extends our

direct lending offering into the senior-portion of the debt

capital structure, principally in the form of first-ranking

unitranche loans. We see significant appetite from mid-sized

corporates for these form of financing as banks continue

to retreat from the market due to regulatory and capital

constraints. The strength of the market opportunity, as well

as of our existing network and dealflow, is illustrated by the

successful fundraising effort (c.€600 million raised as of

December 2017 prior to final closing) and by the positive

deployment momentum of the fund, with six investments

completed and c.40% of the fund committed as of

December 2017.

As at 31 December 2017, the value of the Group’s investment

in FADL represented €8 million.