US company plans to increase investment

Babson Capital Management, the US$129 billion investments unit of Massachusetts Mutual Life Insurance, plans to increase lending in Australia as accelerating economic growth spurs mergers and acquisitions.

"The absolute level of returns for senior loans is quite attractive in Australia" at a time when US markets are "sluggish", said equity head Michael Hermsen.

Senior loans that give priority rights to assets would complement a Sydney-based mezzanine venture Babson Capital started in March, said Hermsen.

Mezzanine financing, where investors provide a blend of equity and debt to fund buyouts, yields as much as 20 per cent in Australia, he said.

Five straight quarters of economic growth have prompted the Reserve Bank of Australia to lead Group of 20 nations in raising interest rates, with six increases since October.

Blackstone Group, TPG Capital and Carlyle Group bid A$1.8 billion ($2.2 billion) for Healthscope in May, attempting the country's biggest buyout in two years.

Deprived of finance during the global credit crisis, buyout companies worldwide plan to invest a record US$507 billion ($715 billion) of cash raised before the collapse, triple the comparable figure in December 2001.

Babson Capital concentrates on lending to transactions involving private equity firms because it's found they are better at correcting problems than other types of buyers, Hermsen said.

"We don't intend to compete with the banks, but we hope to be able to participate in some of the financings they're putting together," he said.

Babson Capital's Sydney office has as much as A$75 million to invest by year end in mezzanine financing, he said.

The asset manager would decide next year whether to start offering senior loans.

- BLOOMBERG