Atlas Holdings Launches Traditional Fund

Atlas Holdings has entered the market with its first traditional investment vehicle, two sources familiar with the situation said. The Greenwich, Conn.-based distressed investment firm had previously relied on investors to commit capital on a deal-by-deal basis, and typically depended on large chunks of its own general partners’s capital to close deals. The hope is that the $300 million-targeted fund will allow the firm to operate more efficiently in a market that’s currently flooded with distressed opportunities, a source said.

The firm retained the services of Capstone Partners to advise it in raising the fund, the sources said. Atlas Holdings invests in troubled companies in the lower-middle market distressed through a distressed debt-for-control, or “loan-to-own” strategy, similar to that of its founders’s prior firm, Pegasus Capital Advisors. The “loan-to-own” strategy has picked up steam in recent months as buyout pros tend to look to the bankruptcy courts as a source of deal flow. Many buyout firms have expressed interest in the technique but lack the understanding of debt investing necessary to execute. In one recent situation, buyout firm Irving Place Capital partnered with OakTree Capital, an experienced distressed debt buyer, to purchase control of paper products maker Chesapeake Corp. as through a pre-bankruptcy debt purchase.

That technique has produced strong returns for Atlas Holdings, placing it “at the high end of top decile returns” for some of its investors, a source said. The firm entered the market with its new fund in July and hopes to hold a first on more than $100 million by the end of this year or early in 2010, a source said. Atlas Holdings’ general partners intend to make an “abnormally large” capital contribution to the new fund, one of the sources said.

Atlas Holdings targets investments in the industrial, chemical, agribusiness and financial services industries. In August, the company purchased the Trus Joint Commercial division of Weyerhaeuser for an undisclosed amount. In May, the firm teamed up with Blue Wolf Capital Management to purchase a pulp mill and associated timberlands business from Neenah Paper Inc. The firm declined to comment for this story.