Fund Closes – Goldman Nears $1.5B for Mezz Fund –

Goldman, Sachs & Co. last month held a final close on its second mezzanine fund, rounding up a total of $1 billion.

In addition, the investment bank is preparing to close on an additional $500 million for a bank debt vehicle that will increase the mezzanine fund’s size to $1.5 billion, making it one of the largest such funds ever raised.

In December, Donaldson, Lufkin & Jenrette found $1.6 billion for their second mezzanine fund, the largest to date (BUYOUTS Dec. 6, 1999, p. 1).

The final close includes a $165 million commitment from Goldman Sachs, with the remaining capital coming from individual and institutional investors.

GS Mezzanine Partners II will invest between $25 million and $175 million per deal, said Muneer Satter, a managing director at the firm’s merchant banking arm. Goldman Sachs pursues investments that fall within that range because most mezzanine firms cannot commit more than $25 million per deal, Satter said, while high-yield financing is only available beginning approximately at the $100 million to $150 million mark.

Second Focus Same as the First

The second fund targets roughly the same “sweet spot” targeted by Goldman Sach’s previous mezzanine fund, which rounded up a total of $1.2 billion in 1996, including a $400 million line of credit.

“Our second fund was oversubscribed,” Satter said. “We could have raised a lot more money, but we wanted to stay within the same strike zone to make sure we invested the fund successfully.”

Fund I completed 17 transactions, the last of which occurred at the end of 1999. As with the first fund, Satter said his firm plans on investing the second fund at a clip of approximately $500 million per year.

Fund II will be invested in deals done by outside financial sponsors.

The fund will be managed by Satter, Douglas Londal and Melina Higgins, all of whom are based in New York. Londal said Goldman Sachs sets itself apart from other providers of mezzanine because it never backs out of an agreement due to changes in market conditions. For example, Londal said the firm agreed to make a $125 million mezzanine commitment to Meadowbrook Meat in July 1998, and closed the deal two months later on the original terms despite the intervening collapse of the debt markets.

Some of the financial sponsors that Goldman Sachs’ mezzanine group has worked with in the past include Code Hennessy & Simmons, Madison Dearborn Partners and the U.K.-based BC Partners.

Goldman Sachs’ mezzanine capital will be competing in an increasingly crowded field of mezzanine mega-funds, including vehicles raised or being raised by DLJ, The Blackstone Group and Thomas H. Lee Co.