Recovery fund: releasing the shackles of debt

Francinia Protti-Alvarez
21 April 2010

Tweet
Facebook
LinkedIn
Google plus
Send to

ICGтs new recovery fund specifically supports companies chained down by over-leverage, rather than loss-making businesses that require a complete turnaround. Francinia Protti-Alvarez investigates

Distressed investments have never been bigger or broader in scope than they are in the current market. As a result, there have been a number of successful fundraisings in the area. In May last year, Siguler Guff & Co reached a final closing on its fund-of-funds Distressed Opportunities Fund III on $2.4bn, well ahead of its $1.5bn target. Smaller funds have also raised and successfully closed above their initial target, as was the case in January this year for Kelso Place Asset Management UK's Special Situations Fund IV, which hit its hard cap of £100m, well surpassing the vehicle's £75m target.

However, not all turnaround/recovery funds are the same; to begin with, not all of them target distressed assets. Such is the case for Intermediate Capital Group's (ICG) Recovery Fund, which closed last week on €843m. The fund was launched in late 2008 meaning that it did most of its fundraising during the annus horribilis that was 2009. Regardless, ICG was able to secure subscriptions from investors in the US, Europe, Asia and the Middle East most of which, interestingly, were new to ICG.

"The fund is not seeking to invest in distressed assets requiring an operational turnaround. Rather it is targeting strong businesses with balance sheet problems or where the debt is constraining the company's growth. The strategy relies on a broad and very flexible set of the tools, which may or may not include the acquisition of an equity stake –though not a controlling one –in the business," Benoit Durteste, manager of ICG Recovery Fund.

The fund's strategy sees the vehicle – already more than 30% invested – back "good" European mid-market companies (up to €500m in enterprise value).

An example of the fund's investment is BC Partners' Belgium-based electronic publisher Bureau van Dijk (BvD). The deal –completed last year and one of the two largest completed by the fund so far –saw ICG acquire the company's senior debt at a discount; with leverage levels down the company has been able to pursue its growth plans and is performing accordingly. ICG now expects to achieve a 2x money multiple on their investment.

ICG initially invested in the company in 2007, when BC partners acquired a 60% stake in BvD from Candover in a deal estimated at €735m, where ICG provided a mezzanine tranche.

Investment opportunities can be expected to lie across the board in terms of geographies and sectors, to an extent mirroring activity in the LBO market during the peak years.