By Liz Moyer Of DOW JONES NEWSWIRESNEW YORK (Dow Jones)--Jefferies Group Inc. (JEF) is doubling its resources in middle market lending and adding commercial real estate lending as part of an effort to diversify its traditional investment banking and trading businesses.
On Friday, the firm and Massachusetts Mutual Life Insurance Co. announced they would inject another $500 million into a five-year-old joint venture, Jefferies Finance, that provides loans to middle-market and larger corporations and financial sponsors. That follows an announcement earlier this week that Jefferies had teamed up with the Government of Singapore Investment Corp. (GIC.YY) and Mark Finerman's LoanCore LLC in a $600 million joint venture to originate commercial real estate loans.
Middle market lending is seen as a growth area for banks now that other previously hot businesses, especially in trading, are being constrained by new regulation. And there is plenty of competition in the field, from large U.S. commercial banks like J.P. Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC) to specialized commercial lenders like CIT Group Inc. (CIT).
Jefferies has been diversifying in recent years, adding to its advisory and cash equities capabilities to become more of a full-service investment bank. Brian Friedman, the chairman of the firm's executive committee, said in a telephone interview Friday that consolidation on Wall Street and among regional banks had created opportunities in middle market lending.
New England alone was once home to regional lending giants Fleet Financial Group and Bank of Boston, but both companies got swallowed up in acquisitions and are now part of Bank of America. Fewer choices among large commercial banks created a vacuum for newer lenders.
In addition, corporate and acquisition finance completes Jefferies' product offerings, Friedman said. "The capacity to provide direct financing to companies through Jefferies Finance is fundamental to our business and part of our integrated offering."
Among Jefferies Finance's recent deals, it was a joint lead arranger on a $408 million loan to finance Film Yard Holdings' acquisition of the Miramax film library from Walt Disney Co. (DIS); a $230 million loan to finance Leonard Green & Partners' buyout of AspenDental; and a $200 million credit facility for Dave and Busters.
Among arrangers of syndicated loans in large middle market deals involving financial sponsors, it ranked sixth last year, according to LoanConnector.com, a unit of Thomson Reuters.
Commercial lending was one of the only industry loan categories to grow in the fourth quarter, according to data from the Federal Deposit Insurance Corp. Total assets of insured institutions fell by $51.8 billion in the quarter, including declines in trading assets, real estate construction and development loans, and non-credit card consumer loans. In contrast, commercial and industrial loans in the industry rose by $11.8 billion, the second consecutive quarterly increase.
Jefferies Finance has loaned $20 billion over five years, in increments ranging from $100 million to $1.5 billion. The joint venture began in 2004. Mass Mutual affiliate Babson Capital Management LLC manages the portfolio of loans underwritten by Jefferies.
The new commitment includes $250 million from each partner, raising the total commitment to $1 billion. Each firm will fund equally an additional $1 billion revolving credit line to support large loan underwritings by the finance unit.