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KCAP Financial Forms Investment Joint Venture with Freedom 3

July 21, 2017, 07:17 AM
Filed Under: Investment Financing

KCAP Financial, Inc. announced that it has formed a joint venture with Freedom 3 Opportunities LLC, an affiliate of Freedom 3 Capital LLC, to create KCAP Freedom 3 LLC. The Company and Freedom 3 Opportunities LLC contributed approximately $35 million and $25 million, respectively, in assets to the KCAP-F3 Joint Venture, which in turn used the assets to capitalize a new fund managed by one of the Company’s wholly-owned investment advisers. In addition, the Fund used cash on hand and borrowings under a credit facility to purchase approximately $183 million of loans from the Company and the Company used the cash from such sale to redeem approximately $148 million in debt.  The KCAP-F3 Joint Venture may originate loans from time to time and sell them to the Fund.

The joint venture agreement will allow the Company to invest in senior middle-market loans as well as provide additional sources of investments through its Joint Venture partner.

Dayl Pearson, President and Chief Executive Officer of the Company, noted, “We are pleased to enter into this joint venture transaction which is similar to those entered into by other business development companies and will allow us to continue investing in senior middle-market loans and provide significant liquidity for balance sheet growth. Following the completion of the debt redemption, KCAP Financial will have the financial flexibility to pursue attractive investment opportunities that generate strong free cash flow and drive value for our shareholders.”

Jason Block, Partner at Freedom 3 Capital LLC, commented, “We are excited to partner with the KCAP team.  We have known many of them for over 20 years and their strong credit culture allowed us to buy into a great portfolio at the outset.  We look forward to working with their team’s continued expertise in growing the venture.”

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