By Keenan Skelly
Of DOW JONES NEWSLETTERS
CHICAGO (Dow Jones)--Mezzanine firms, which have seen sparse pickings in the past few years as other, cheaper kinds of debt have flourished, are enjoying fertile fund-raising ground now that the debt markets have turned.
LP demand has been strong for such funds of late, as they anticipate that mezzanine firms will be able to get better terms on the debt that they offer. Pension funds that have been active in increasing their mezzanine debt exposure recently include San Bernardino County Employees' Retirement Association, Oklahoma Police Pension and Retirement System, Detroit Police and Fire Retirement System, and Seattle City Employees' Retirement System.
"We target 15% to 25% mezzanine exposure in the special situations sector of our funds," said Brian Murphy, managing director of fund-of-funds manager Portfolio Advisors LLC. "We move to the higher end of the range when markets are timely, like now, and push to the lower end of the range when credit is cheap and expected mezzanine returns are lower."
(This story also appeared in LBO Wire, a newsletter published by Dow Jones & Co.)
Placement agents estimate that about 55 funds are in the market or expected to come to market soon that seeking to raise somewhere in the neighborhood of $20 billion to take advantage of mezzanine opportunities in the U.S. and Europe.
Among the larger firms, Blackstone Group LP (BX) is expected to seek at least $1 billion for Blackstone Mezzanine Partners III LP, after closing on just north of $1 billion for its predecessor in 2006, sources familiar with the matter said. Lehman Brothers Holdings Inc. (LEH) is also out marketing two large vehicles. Lehman Brothers Global Mezzanine Partners LP and Lehman Brothers European Mezzanine Partners II LP hope to collect $2 billion and EUR1 billion ($1.54 billion), respectively, people familiar with the firm said.
In Europe, Park Square Capital Partners has launched a EUR1.5 billion mezzanine vehicle, Park Square Capital II LP. Fund I was a EUR1 billion fund that closed in late 2004. Alcentra Group, also a London-based firm, is seeking EUR1 billion for its latest fund, said sources familiar with the firms.
Newstone Capital Partners, the spinout of TCW/Crescent Mezzanine LLC, also is expected to soon launch Newstone Capital Partners II LP, after closing on more than $600 million for its debut vehicle just last year. Sources familiar with the effort said the firm will target $1 billion for Fund II. Its former parent also attracted a lot of interest for TCW/Crescent Mezzanine Fund V LP, which aims to raise at least $2.5 billion.
In the sub-$1 billion market, Falcon Investment Advisors aims to rake in $800 million for Falcon Mezzanine Partners III LP, while StoneCastle Partners is out marketing SCP Community Bank 3, which has a $750 million cover amount.
Northstar Capital LLC has a $500 million target for Northstar Mezzanine Partners V LP, which would be double the size of Fund IV. Another smaller shop, Gleacher Partners, is expected to raise $500 million for Gleacher Mezzanine Partners III LP sometime in 2009. Fund II closed just short of that amount last year.
"For us, the environment has never been better," said Colette Nakhoul, Managing Director of mezzanine outfit Smith Whiley & Co., which is seeking to raise at least $250 million for SW Pelham Fund III. "Demand is up, return expectations are up and lending standards are more rational."
Nakhoul added that while credit markets have contracted, there is plenty of private equity capital still available. That leaves a gap in leveraged lending, and "Mezzanine is perfectly suited to fill this gap."
-By Keenan Skelly, Dow Jones Newsletters; keenan.skelly@dowjones.com
(END) Dow Jones Newswires
May 20, 2008 09:19 ET (13:19 GMT) | 
