BB&T Jumps Into Mezz Market

Firm: BB&T Capital Partners

Fund: BB&T Capital Partners/Windsor Mezzanine


Target: $160 million

Amount raised: $160 million

Legal Counsel: Womble Carlyle Sandridge & Rice,

Pepper Hamilton as special SBIC legal counsel

LPs: BB&T Corp., Allied Capital, U.S. Small Business

Administration, individuals

Adding its own voice to the clamor of firms addressing the mezzanine market, BB&T Capital Partners in early May closed its inaugural mezzanine fund with $160 million. The new vehicle was backed with funding from the U.S. Small Business Administration (SBA).

BB&T Capital Partners is the private equity unit of the Branch Banking and Trust Corp. (BB&T Corp.), a Winston-Salem, N.C.-based retail-banking and financial services provider. BB&T is the cornerstone limited partner in the new fund, having made a $25 million commitment. Allied Capital Corp. is the only other corporate investor, committing $17.5 million, while individual investors contributed a sum of $12.5 million.

The $55 million that the fund raised on its own is being augmented by a $105 million commitment coming from the debenture program of the U.S. Small Business Administration.

BB&T named the debut vehicle BB&T Capital Partners/Windsor Mezzanine Fund. The Windsor attribution is a reference to the mezzanine fund that had been operating under the Windsor Group. BB&T acquired the Windsor Group last year, and convinced the investors in the Windsor mezzanine fund to roll over their commitments into the firm’s new BB&T-branded vehicle.

BB&T Capital will make subordinated debt investments of between $3 million and $10 million in middle market companies throughout the United States. The firm will look to help finance acquisitions, buyouts, expansions and recapitalizations.

“We think it’s a good niche from an investment size,” said David Townsend, a managing partner with BB&T Capital. “There isn’t a large number of funds really focused on the sub $10 million market and not many of the smaller funds can do more than $5 million, so there appears to be somewhat of a void in that $3 million to $10 million range.”

The firm expects to primarily target the manufacturing, distribution and services industries. The fund has already closed two deals, helping to finance the buyouts of Thompson Industrial Services and home décor distributor Scout Limited Inc. BB&T also has another deal pending that is expected to close in the next two months.

Townsend said that the firm will draw from its ranks of individual investors and from its parent company’s network to help generate deal flow. “We’ve seen a lot of opportunities both internally through the BB&T network and externally through equity sponsors and other intermediaries for that investment size.”

While smaller than many of its peers, BB&T Capital is joining an expanding fraternity of mezzanine players. The Carlyle Group’s inaugural mezzanine fund, for instance, is set to hold a final close on as much as $450 million.

Other mezzanine funds that have closed this year include Babson Capital Management’s $1 billion Tower Square Capital Partners II; York Street Capital Partners’ $700 million York Street Mezzanine Partners II; and Harbert Management Corp.’s Harbert Mezzanine Partners II, which closed on $233 million. — M.S.