CapGen Capital is seeking an order to compel
John Sullivan, managing director with New York-based CapGen Capital, said the firm would not comment on the litigation.
At issue is a $3.5 million pledge made by Chalice Fund and a $1 million pledge made by WK CG Investment to CapGen Capital, according to the complaint. As of the time of the complaint, the uncalled portions of those pledges stood at $2.4 million and $680,691, respectively.
CapGen Capital said it issued written notices to Chalice Fund and WK CG Investment on Dec. 22, requesting required capital contributions for a portfolio investment and related management fees. When the capital contributions didn’t come, CapGen Capital said that it then sent letters to both parties in late February, stating they were in default, and notifying them that it planned to move ahead with legal action if payment wasn’t received by Feb. 25.
A lawsuit pitting a buyout firm against its LPs is rare, according to Chicago-based law firm Kirkland & Ellis, which discussed the case in a recent newsletter that it distributed to clients. The firm called such lawsuits “few and far between” for a number of reasons.
“Even amid the current global financial crisis and tremendous liquidity pressure it has exerted on certain LPs, current anecdotal evidence indicates that the number of actual defaults is still small on a percentage basis,” Kirkland & Ellis said in its newsletter.
Kirkland & Ellis also called CapGen Capital’s decision to sue a “relatively unorthodox approach.”
“Often in a situation like this, a sponsor will try to work out an alternative solution, such as finding a third-party buyer for the commitment,” said Andrew Wright, a partner at the law firm. “The speed of this reflects, from the outside at least, that CapGen seems to be taking a pretty firm stance from the onset.”
CapGen Capital takes control positions in financial services companies with assets of between $500 million and $20 billion. Its investments typically range in size from $15 million to $100 million, and the firm often invests as part of syndicates.
In its complaint, CapGen Capital said it has gathered $500 million in capital commitments for its investment vehicles. The pool included pledges totaling $489.9 million from 73 investors, and $10.1 million from the general partners. —Michael Baron