Two UBS O'Connor credit veterans launch RiverBay Capital

Rodrigo Trelles and Baxter Wasson have launched RiverBay Capital, a new private credit manager, after leaving the former private credit division of UBS last year, Creditflux reported on 15 September, citing sources. The headline credits the pair to UBS O'Connor; the text describes a former private credit division of UBS without saying when it stopped operating under that name or what became of it. The story itself yields no vehicle, no target size, no strategy and no anchor investor, which leaves the number this beat keeps score with absent.

What the pair brings is easier to state than to price. By the ordinary logic of a spinout, executives who ran credit inside a bank arrive with borrower relationships and a sourcing network, and without the things institutional investors underwrite: a fund, an audited return series, a business that outlives its founders. That asymmetry is why first money in this business usually comes in small packages, whether an anchor commitment from one or two limited partners who know the principals or a separately managed account that pays fees while a record accumulates. Creditflux does not say which of those RiverBay is attempting, and the launch rests on its sources rather than on anything the founders themselves said.

The labour market has been running this way for a while, if from the other side of the table. When KKR hired Bank of America's former EMEA debt capital markets head and a JPMorgan dealmaking banker for European credit, this publication's read was that CLO resets had made funding cheaper and sourcing assets the harder problem. KKR bought the people who find loans. RiverBay runs the same trade from the other end: the founders carry the sourcing out with them and have to assemble everything else, from the vehicle and the compliance function to the back office and the investors' patience, from a standing start.

The cycle is not making that assembly easier. Deal supply is arriving at last, and the arithmetic cuts in two directions: this publication described a EUR60 billion pipeline, two-thirds of it M&A, as good for unitranche volume and bad for spread, with the spread effect the one that sticks. Asset supply is not the problem; competition for it has a price. A manager with no track record wins loans by conceding on price or on structure, and the concession is hard to take back once it sits inside a credit agreement. Our position stands that the next unitranche vintage will reveal whether growth was bought with looser covenants.

One lever the incumbents are using is shut to a firm this young. Four managers repriced nearly $2 billion of US CLO resets in August, as this publication reported, and the reset wave has already crossed into European vehicles. Copying that trade needs a seasoned CLO plus the equity cheque to recapitalise it, and a startup has neither. We have argued that resets have moved from a free option to a paid recap, and that managers who cannot write the equity cheque end up selling collateral. RiverBay has no collateral to sell, which means it funds itself the expensive way: one limited partner at a time.

The disclosed capital of the past two days went to a different shape of firm. PCD's records show Carlyle logging a $2.3 billion fund launch on 15 September, the same day Creditflux published its RiverBay story, and BlackRock a launch the day before. Two launches settle nothing by themselves, but they point one way: the money that advertises itself belongs to managers whose platform is already the pitch. The inference for RiverBay is that the first cheque is likelier to come from an investor with a prior relationship to Trelles or Wasson than from an open process.

Then there is the strategy question, where this publication has a position. As we have argued, private credit's next battleground is asset pools structured for ABS pricing rather than corporate cash-flow lending, and originators who can securitize will outrun balance-sheet lenders. Nothing in the RiverBay coverage places the founders on either side of that line: they come out of a bank's private credit division, no strategy is named, and the firm as reported is a name and two people. A first vehicle built around corporate unitranche would put them in the slice of the market where the M&A pipeline is already compressing spread. A pool underwritten with an eye to ABS financing would give a debut manager a funding route that a fund of unsecured corporate loans does not have, which suggests the strategy choice will matter to RiverBay's economics long before its first close does.

The paperwork is the next datapoint, and it will be worth more than the announcement. A registration, a first close or a single institutional mandate will say more about the firm's prospects than this week's story did, and the choice between a closed-end fund and a set of managed accounts will say what kind of business the founders intend to run. Carlyle's $2.3 billion is what this market is currently paying for a platform, and how much of that a two-name shop can approach without one is what the next disclosure will show.