DDJ Capital Seeks $400M for Distressed Fund

DDJ Capital Management is seeking $400 million to invest in the distressed debt of publicly traded and privately held companies.

The Waltham, Mass.-based firm plans to employ a control style of distressed investing for DDJ Capital Partners. The strategy calls for it to establish at least a blocking position in the debt security positions, meaning that it will own at least one-third of a particular debt class, in its investments, giving it veto power over any reorganization. The firm would then restructure the company’s finances to create a control equity stake in the reorganized company. A private equity approach is then used to make operational and financial improvements. DDJ prefers more senior debt because it has less downside risk.

The firm charges a management fee of 1.5 percent. Backers include the Missouri State Employees’ Retirement System.

DDJ Capital monitors the capital markets to identify companies in financial distress and often follows and analyzes companies before financial difficulties, covenant defaults or bankruptcy filings take place. When a covenant default is announced or a bankruptcy filing seems likely, DDJ then evaluates the company’s merits, which could include a competent management team, a sustainable market position, and/or a stable base asset value. DDJ also uses a network of turnaround consultants, restructuring advisers, bankruptcy lawyers, senior executives and investment bankers to find and evaluate possible distressed deals.

The firm uses four core strategies: control distressed, high yield debt, non-traditional corporate loans and credit-focused hedge funds. All strategies target the small and mid-cap portion of the lower equity and debt markets. DDJ Capital has 18 investment professionals doing research, investment management, trading and legal structuring of complex distressed transactions.

David Breazzano and Judy Mencher co-founded the firm in 1996 following careers together at Fidelity Investments.

In July, Avenue Capital Group and DDJ Capital Management received bankruptcy court approval for their acquisition of Milacron Inc., a plastics processing and industrial fluids company.