Genstar, Lee Equity lead $500m healthcare investment

Private equity firms Genstar Capital, Moelis Capital Partners and Lee Equity Partners have committed $500 million in equity to newly formed MidCap Financial, which provides loans to the healthcare industry.

Genstar and Lee Equity provided the majority of the equity, with Moelis Capital providing the remainder and its parent Moelis & Co acting as financial advisor to MidCap.

The $500 million of equity is an up-front commitment that will be funded as MidCap makes loans, Genstar principal Ryan Clark told PEO. “If the business continues to grow and is successful, I’d certainly imagine that we would continue funding it.”

The company also has a long-term debt facility led by Wells Fargo Foothill, the senior secured financing unit of Well Fargo.

“There’s a real advantage to starting with a new company with a fresh balance sheet, with fresh capital and no legacy loans,” Clark said. “It’s great to be a lender and hard to be a buyer right now.”

Mid-market lender MidCap is led by the former senior management team of Merrill Lynch Capital Healthcare Finance, including its founder Howard Widra, who will serve as MidCap’s chief executive officer.

After Merrill Lynch Capital was purchased by GE in early 2008, the healthcare finance team hired Moelis & Company as its placement agent to raise the capital to form their own operation, Clark said.

MidCap focuses on four areas that are a continuation of the team’s strategy at Merrill Lynch: real estate loans for healthcare-related facilities, collateralised working capital loans, leveraged loans for private equity-backed healthcare companies and life sciences loans.

The company, based in Bethesda, Maryland with offices in Chicago and Los Angeles, specialises in loans between $10 million and $200 million.

San Francisco-based Genstar targets mid-market investments in sectors within the life science, healthcare services, industrial technology, software and business service industries. The firm closed its fifth fund on $1.6 billion in June 2007. Fund IV closed on $475 million in 2004.

Lee Equity Partners was founded by Thomas H Lee in 2006 and makes growth investments of between $100 million and $500 million, mostly in the US. The firm has yet to announce a fund close. When it was founded, the firm said it had “interim financing” that enabled it to begin investing at once.

Moelis Capital is the merchant banking division of boutique investment bank Moelis & Co led by former UBS investment banking head Ken Moelis. The private equity division, which focuses on co-investments with other firms rather than leading deals, held the first close of its debut fund on $1.8 billion in September 2007 and has yet to announce a final close.