Still no turnaround fund in sight for Nordic market

The topic of turnaround funds is a popular one when discussing the Nordic private equity sector. European LPs are often curious as to why no GP has positioned itself in the segment and some explicitly state their desire for special situations vehicles focusing on the Nordic markets.

Despite a discussion that never seems to die down, no funds have been raised and there is little suggestion any are imminent.

Last year, special situations investor Oaktree Capital Management took over distressed Danish shipping company Dampskibsselskabet Torm in a major restructuring deal for the debt-laden company.

The US-based GP provided a fleet of new vessels in return for equity in the 127-year-old business and wrote off $500m of Torm's $1.4bn debt, following an agreement with the 40-odd hedge and distressed debt funds and six banks that made up Torm's creditors.

Though Torm was the largest distressed asset deal in the region in 2015, there were more than a few cases of distressed or underperforming investments – both private-equity-owned and not.

Triton exited heavily indebted Danish environmental services company DSVM to Maj Invest and a group of institutional investors for a reportedly nominal fee. Axcel sold furniture logistics company LGT Logistics back to Litorina in March, having bought the company from the same GP six years earlier. The Danish GP also wrote off its investment in fashion retailer Noa Noa earlier in 2015, handing the company over to its creditors, a group of banks.

Ahead of the unquote" Nordic Private Equity Forum last year, SL Capital's Graeme Gunn said his firm would like to invest in a €50-100m turnaround fund in the Nordic region, but none existed. Despite the seeming presence of LP demand for a distressed asset fund and opportunities to deploy it in the region, that hole in the market remains.

Banking on patience
While a GP would likely be able to raise enough capital to launch a decent-sized turnaround fund in the Nordic region, the main reason it has not happened and the likelihood remaining small is the Nordic banks.

There are only a handful of major local banks in the Nordic countries and they have historically shown serious patience with their debtors when these companies have run into trouble. The banks have generally chosen to work with debtors and owners to find a long-term solution, rather than have a special-situations GP take over the asset.

This was exemplified with Noa Noa, where a group of banks led by Nordea took over the company after its DKK 600m debt burden had become impossible for the retailer to service.

Nordic GPs may also be less keen on having a turnaround manager take the reins, as the relatively tight-knit financing industry means there is a lot of incentive to maintain the best relationship possible with bankers.

Torm to pieces
However, the Torm case shows the Nordic banks' patience is not inexhaustible. The shipper's troubles had been ongoing since around 2008 and by the time Oaktree stepped in, some of Torm's banks had already sold some of their debt off to US hedge funds. Indeed, Oaktree's investment was to some degree a result of the banks having run out of patience and not being able to successfully turn Torm's ship around.

The case for a dedicated Nordic turnaround manager remains weak, but if there is an argument for a special situations fund in any Nordic country in 2016, Norway and its oil-and-gas-based economy may be the best bet. With oil prices continuing to drop, just two of Norway's oil fields are currently profitable, and barely so.

Given the negative outlook for the Norwegian oil and gas sector – and the PE favourite, oil and gas services – banks may end up worried about holding too much debt for underperforming assets, which could make the idea of a turnaround manager an attractive solution.

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• Topics
• GPs
• Nordics
• Turnarounds
• Top story
• Oaktree Capital Management
• Triton Partners
• Axcel
• Aberdeen Standard Investments