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Bain Capital’s latest distressed, special situations fund passes $2bn mark

The fund's strategy, designed prior to the covid-19 pandemic, could have even more resonance today with a potentially growing pool of distressed assets.

Bain Capital is two-thirds of the way to a $3 billion target for its third distressed offering, as market upheaval spurs growing investor interest in dislocation strategies.

Bain Capital Distressed & Special Situations 2019 secured nearly $2.1 billion, according to Form D fundraising documents. The fund’s target, disclosed last year by Pennsylvania Public School Employees’ Retirement System, is in line with the $3.1 billion secured by Bain’s 2016 vehicle.

Some 261 investors committed capital to the 2019 fund, the Form D documents showed. Disclosed examples include Pennsylvania PSERS, which committed $200 million.

The general partner will provide at least 3.33 percent of commitments, Hamilton Lane said in a report to Pennsylvania PSERS.

Bain Capital Credit has been the Boston private equity firm’s credit arm since 1998, when it was known as Sankaty Advisors. Overseeing $40.8 billion in assets, the group invests in a range of opportunities, including leveraged loans, high-yield bonds, distressed debt and special situations, direct lending, structured products, non-performing loans and equities.

The 2019 fund was set up to invest 35-60 percent of capital in purchases of distressed assets at discounted valuations, allowing it to tap into credit contraction and defaults. It will also give priority to buying assets from forced sellers (30-40 percent) to capitalize on asset sales in over-levered markets.

The balance of capital will go to customized financings for companies. The vehicle is targeting 30 to 60 debt investments ranging from $75 million to $150 million.

Opportunities will be sought globally, with North America and Europe accounting for 30-40 percent of fund capital, respectively, and the Asia-Pacific region 20-40 percent. The mix of activity by geography, sector and security is expected to change with market conditions.

Emerging opportunities

This strategy, designed prior to the covid-19 pandemic, could have even more resonance today. The shuttering of businesses may cause distressed debt to spike and create the potential for bankruptcies and restructurings, especially in industries like oil and gas and retail.

Private debt fundraising, including fundraising for distressed strategies, declined sharply in the first quarter, with just $20.6 billion collected by 24 vehicles, PEI data show. Several major firms, however, are now positioning offerings for emerging opportunities.

Oaktree Capital, acquired last year by Brookfield Asset Management, is raising a new distressed fund with a $15 billion target, a source told Buyouts. KKR also is reportedly looking to rebrand and recapitalize its third special situations fund as a dislocation pool.

Bain Capital Credit closed several new deals of late. They include this month’s $50 million financing of Merchants Fleet, a fleet management business. Earlier in April, the group and Pine Island Capital Partners completed their acquisition of Precinmac, a maker of machined components and assemblies, from GenNx360 Capital Partners.

The credit group is led by Bain co-managing partner Jonathan Lavine, who founded Sankaty. Jeff Robinson, head of distressed and special situations, is the fund’s portfolio manager. Other senior team members include deputy managing partner Jeff Hawkins, head of Europe Alon Avner and head of Asia Barnaby Lyons.

Bain Capital Distressed & Special Situations 2016 generated a net IRR of 13.4 percent as of December 2018, according to Pennsylvania PSERS, while the 2013 fund generated a net IRR of 6.5 percent.

Bain declined to provide a comment on this story.

Action Item: check out Bain Capital Credit’s ADV filings here.