To meet the alternative credit needs of middle-market businesses, Centerbridge and Wells Fargo formed a strategic partnership, diversifying the market of clients served by private credit and direct lending.

Wells Fargo on Sept. 26 announced it had partnered with Centerbridge Partners (Centerbridge) to provide direct lending opportunities to non-sponsor North American middle market companies.

Middle-market businesses occupy the vast range between small niche firms and large publicly traded enterprises. They are often not taken into account separately, but grouped with small businesses under a single abbreviation – SMEs. Yet, their credit needs might greatly differ from those of a small company. Thus, this market segment is often underrepresented in loan offerings.

To meet the financial needs of this segment, Centerbridge aims to launch Overland Advisors direct-lending fund. It will be primarily focused on making senior secured loans. The cash for this fund will come from Centerbridge itself, along with other investors, including the Abu Dhabi Investment Authority and British Columbia Investment Management Corporation.

Wells Fargo also participates in the fund with a minor equity investment. In return, its extensive middle market customer base can use the new direct lending option as an alternative to traditional sponsor-backed credit.

Overland Advisors aims to amass at least $5 billion in investible capital, with $2.5 billion set aside for equity commitments. It is expected that initial equity commitments will reach about $2 billion.

“We believe Overland draws on the unique and complementary capabilities of both Centerbridge’s leading private credit underwriting capabilities and Wells Fargo’s nationwide sourcing and origination network to offer an attractive new proposition for borrowers in the private lending and direct credit space at a particularly compelling time.”

Jeff Aronson, Co-Founder and Managing Principal of Centerbridge Partners

The sourcing relationship between Overland Advisors and Wells Fargo will offer an innovative direct lending model for family-owned and other privately owned middle-market businesses in North America that have limited access to private credit.

The fund will benefit from Wells Fargo’s long-term relationships, extensive client base and leading position in U.S. middle-market and asset-based lending.

U.S. middle market is a critical segment for the national economy. Companies in this sector are predominantly service-oriented, providing business services, health services, and educational services. Many of them are also engaged in retail or wholesale trade, construction activity, or manufacturing.

The middle-market American businesses have annual revenues ranging between $10 million and $1 billion. Their annual revenues combined reach more than $10 trillion.