General Electric is close to reaching an agreement to sell its private equity lending unit to the Canada Pension Plan Investment Board (CPPIB), according to report from Wall Street Journal based on information from people familiar with the matter.
The deal is expected to include Antares Capita, GE’s middle-market lender for private equity backed transactions. WSJ previously reported that the company was engaged in advanced negotiations with financial institutions including Well Fargo to sell its middle-market lending unit.
The transaction does not include all of the U.S. sponsor finance business of GE such as its joint venture with Ares Management.
GE and CPPIB are expected to sign a deal and announce it as soon as Monday, according to the sources. They also indicated that the deal would include more than $10 billion, which is considered a step forward for GE’s goal to exit a huge portion of its $500 billion GE Capital unit.
GE Capital previously announced its intention to divest almost $200 billion of assets to create a more valuable and simple company. GE plans to focus on manufacturing and industrial products. GE is exiting its lending business after investors urged the company to return to its roots. Market conditions and federal regulation negatively impacted GE’s banking business.
Ares Capital in talks to buy GE’s interest in a joint venture
According to GE, its lending business was not generating returns, which the company could earn by investing money elsewhere. GE Capital is lending money to private equity firms for their operation or acquisition of midsize companies. The majority of the $16 billion loans on the books of GE Capital’s “sponsor-finance business” are smaller than $100 million.
The WSJ also noted that another significant portion of the loans in GE Capital’s sponsor finance business are co-owned by a joint venture between GE and Ares Capital.
Last month, Ares indicated it is in talks to buy GE’s interest in the joint venture. GE cannot sell the underlying loans under the joint venture without the approval of Ares.
CPPIB could emerge as one of the largest lenders in North America
CPPIB started a direct lending business as past of its initiative to invest further in high-yielding assets to help fund its long-term liabilities. The largest pension fund in Canada could emerge as one of the largest lenders to private equity firms in North America if it would close deal with GE.
Market observers also suggested that GE’s exit from private equity lending would also create opportunities for other lenders in the middle-market lending in the United States.