In June of this year, the commercial finance industry learned of the formation of Varagon Capital Partners, a new asset management firm focused on direct lending to middle-market companies. The entity brings together the financial might and acumen of American Insurance Group (AIG) and the deep talent pool of partners and affiliates of private equity firm Oak Hill Capital Partners.  At the helm of this new endeavor sits industry veteran Walter Owens. Indeed Owens, who has held key executive positions with the likes of GE Capital, CIT Group and TD Bank, needs little introduction.

ABL Advisor spent time with Owens only a few short weeks after the company announcement to gain greater insight into the genesis and inspiration of Varagon Capital Partners, a firm whose name is derived from a combination of the words paragon, versatility and value. As it’s been asked many times, we too asked of Owens: what’s in a name? From Owens’ perspective, Varagon both in name and performance is destined to prove itself to be a model of excellence that delivers both value and versatility to its borrowers and investors alike.  In the exclusive interview that follows, Owens also speaks to the perceptible shift toward large institutional investors who are gaining greater knowledge in traditional commercial asset classes.

ABL Advisor:  Walter, could you share the genesis of the idea and the subsequent events that ultimately lead to the launch of Varagon Capital Advisors?

Walter Owens:  The genesis of this idea came about when CIT began to experience its issues during the financial crisis. At that time, CIT had been very active in building an asset management platform within CIT. Right before the crash, we had actually launched a New York Stock Exchange listed healthcare equity REIT as well as a sub debt fund with Solar Capital.

We were actively working on finding ways to broaden what had traditionally been a limited product offering – namely first lien debt – for commercial finance companies. We were looking to provide a full service product offering to the corporate finance market. Fast forward to the period post-crisis and after my time at TD … it appeared to me that the storm clouds were beginning to recede and the market was more receptive to investing in loans. In my early discussions with Oak Hill Capital, it became clear that alternative asset managers were taking advantage of the credit crisis, to implement this broad based asset management strategy. Given the regulatory pressures on the banks combined with the desire of commercial finance companies that traditionally played in the middle market moving toward being deposit funded banks, we found it to be the right time to capitalize on these new opportunities.

ABL Advisor:  Yet by all accounts, the marketplace continues to be very competitive for lenders. What other factors made this the right time to launch an enterprise the scale and scope of Varagon Capital Partners?

Owens:  First, I would agree that financing middle-market companies is extremely competitive and if you look at the number of alternative providers that have entered the market recently, you would find that there are more than 44 business development companies alone. The way we at Varagon looked at the middle market was that to be a key player, you really need capabilities that many of these BDCs and new entrants do not possess. The key to long term success in the middle market is having the ability to directly originate transactions rather than buying into the market through participation or sharing in club deals.

We looked at the subset of competitors that actually have those capabilities, and it was a much smaller number of companies that not only had the financial resources to do it, but also had it in their DNA to do it. Therein lies what we saw as the opportunity for Varagon becoming an important player in the space.

ABL Advisor:  Tell us about Varagon’s structure, what it looks like today and the direction you see the company taking in the future.

Owens:  In terms of our reach, we are national in scope and we are looking at an overall North American strategy in terms of a leveraged lending perspective. Our initial launch team is all based in New York. For one, that makes a good deal of sense given the predominance of private equity firms in the New York region. Secondly, when you’re launching a business, you want your people together as you are creating the team environment and developing your culture and way of doing things.

Over time as we build out our origination teams, we would clearly want a presence in Chicago and a presence in the Southeast … possibly in Atlanta. We are still thinking about our approach in terms of having a presence on the West Coast.

ABL Advisor:  We note that you have assembled an impressive group of executives from the commercial finance arena. Could you tell us a bit about the current team and the board members?

Owens:  Let me start with Varagon’s sponsors and the board. From the start, we wanted to build an alternative to bank and finance company lead agency platforms. In order to accomplish this, we knew we needed the right composition at the board level. When we started developing Varagon, it became very clear that to be a significant player in the market long term, we would need a significant balance sheet as part of our launch process. It also became clear that some of the best partners would come from the insurance world.

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