Texas Capital Bancshares is the latest bank to get in on private credit.
The Dallas-based company will launch its own platform to provide nonbank private capital to middle-market companies and private equity sponsors, called Texas Capital Direct Lending. Dan Hoverman, head of corporate and investment banking, said that Texas Capital created the solution to cover clients it was turning away because they didn't qualify for bank debt.
"At the end of the day, we want to own as much of the client experience as possible," Hoverman said. "When the client comes in, they don't need to know if they're direct lending fund eligible or bank capital eligible or something else. They know that if they call us, we can provide them with a solution."
The
When Webster announced its own private credit strategy earlier this summer, Piper Sandler analysts wrote in a note that the offering "provides an alternative outlet" to "help existing customers when a loan is not ideal for the bank's balance sheet" and would diversify revenue streams.
"In short, we view this as a creative/smart transaction and think it should have a modest benefit to earnings and the stock price over time," the note said about the Connecticut bank's news.
Texas Capital will raise money from insurance companies and pension funds, like a typical investment vehicle, and offer lending solutions, primarily in the form of senior secured floating-rate term loans, to middle-market companies. The bank plans to move into "investment mode" in the fourth quarter and start lending in 2025, Hoverman said.
The $30 billion-asset company only launched its investment bank a few years ago as part of a
"We're not launching a direct lending fund for the world at large," Hoverman said. "We're really launching a direct lending fund in order to take advantage of what we think is one of the most attractive markets in the world, i.e., Texas-based companies."
Hoverman added that direct lending through the private credit offering is "the next evolution" of its funds management and exchange-traded fund business, which it launched a year ago. Texas Capital also hired Tim Laczkowski, who previously headed a private equity firm, to lead the business, including fund management, underwriting, investments and portfolio management.
The bankwide strategy — to build a Texas-based, full-service financial institution to serve Texans — has capitalized on the Wall Street backgrounds of the bank's executive team, which has been put together since 2021. Chairman and CEO Rob Holmes, who took the reins of the bank three years ago, has spearheaded much of Texas Capital's four-year turnaround blueprint.
Hoverman said that, more broadly, the banking crisis last spring that included the collapse of Silicon Valley Bank forced more banks to "think about their funding base."
The Dallas-based company, whose earnings per share fell short of consensus by 6 cents, lowered its revenue forecast and raised its expense outlook. Its stock price fell more than 8% on Thursday.
"The funding structure for a lending fund is superior to the funding structure of a bank," Hoverman said. "A lending fund is getting 10-year commitments from insurance companies or pension funds or others. That's a lot longer than a demand deposit that somebody might have in their checking account."
As the bank has shifted its priorities,
Still, the bank has
"We see a ton of underlying momentum in the business, and the elements required for improved returns are the same elements that we called out in 2021," Scurlock said at the time.
