Carlyle, Caltius launch mezz funds

The mezzanine revival marches on with two new funds readying to take advantage.

Carlyle Mezzanine Partners, a division of The Carlyle Group in Washington, D.C., has raised at least $209.5 million of the up to $1 billion it seeks for its sophomore fund. Los Angeles-based mezzanine investor Caltius Mezzanine has tapped Credit Suisse to help it raise $400 million for its fourth mezzanine fund.

The mezzanine funds came to light based on recent Form Ds recently filed with the Securities and Exchange Commission.

The fund-raisings come in the midst of a credit crunch that has mezzanine firms sitting in the driver’s seat: Of the handful of LBOs getting done today, many rely on mezzanine debt to fill the capital structure gap left by no-longer-available high-yield bonds. Though expensive, mezzanine financing can be more attractive to buyout firms than the alternative—ponying up a fatter equity check.

Carlyle Mezzanine Partners invested more than $200 million across seven new transactions and several follow-on deals in 2007. The firm targets growth, buyout and recapitalization opportunities in media, telecom, health care, automotive and manufacturing.

Notably, Carlyle Mezzanine Partners has backed two Carlyle Group buyouts, including those of Comark Building Systems, a modular building maker, in 2006, and US Investigations Services, which Carlyle Group bought in 1999. Carlyle Mezzanine’s first fund closed in 2004 with $436 million.

Caltius Mezzanine, which raised a $300 million third fund with the help of Lazard in 2004, provides subordinated debt to companies generating $15 million to $250 million in revenues in buyout, recapitalization or growth situations.

With its last fund, Caltius Mezzanine invested no more than $40 million per deal. In one of its latest deals, the firm in February partnered with Chicago-based LBO shop CIVC Partners to commit $18.3 million to Pacific Crest Securities, a boutique investment bank based in Oregon.

Caltius Mezzanine, along with its affiliated mid-market buyout shop, Caltius Equity Partners, formed in 1997.

Several other firms are also raising mezzanine funds: Senior lender CIT Group launched an opportunistic mezzanine fund in January, as did JP Morgan Chase’s hedge fund High Bridge Capital in November.

GSO Capital Partners is also in the market with a new mezzanine fund, following recently closed funds from TCW/Crescent and New York Life Capital Partners.

Money shouldn’t be hard to drum up: A recent survey by San Francisco-based placement agent Probitas Partners ranked mezzanine funds as more favored by limited partners than mega-funds in today’s environment. —Erin Griffith