Irving Place moves through massive fund restructuring

  • Coller Capital is putting up $500 mln to buy out Fund III LPs
  • Irving Place expects to have $300 mln for new investments
  • Oversubscription today could lead to “zombies” tomorrow

The firm, run by John Howard and Phil Carpenter, is restructuring its 2006, $2.7 billion third fund and offering limited partners the chance to sell out at 100 percent of net asset value (as of Sept. 30, 2014). Existing LPs also can choose to stick with the GP on “substantially similar” terms to what they already have, rolling their interests into a new vehicle that will house existing portfolio companies.

Those rolling LPs will be obliged to provide a small chunk of additional capital that the firm will use for either new deals or follow-on investments in existing portfolio companies, according to documents viewed by Buyouts. The firm expects to raise about $300 million for new investments, the documents said.

Coller Capital is investing up to $500 million in the restructuring of Irving Place III to buy out existing LP commitments as well as to contribute capital for new investments. It’s not clear if Coller is part of a larger investment group. The documents indicate the firm is looking for additional investors to take part in the deal.

Irving Place Capital III had $1.1 billion of unrealized value as of Sept. 30, 2014, the documents said. The fund has 12 portfolio companies, including Bendon, an early development products company the firm acquired earlier this year. Other portfolio companies include Alpha PackagingCAbiCaribbean Financial GroupCH4 EnergyChromaloxIronshoreMold-Rite PlasticsNational Surgical HospitalsPet Supplies Plusrag & bone, and Universal Hospital Services. (Ironshore, which is being acquired from Irving Place by Fosun International, may not be part of the restructuring.)

Fund III LPs are responsible for paying Park Hill Group for its work on the restructuring, the documents said.

Fund III closed on $2.7 billion in 2006 and has not been a strong performer. The fund was generating a 3.4 percent internal rate of return and a 1.22x multiple as of Dec. 31, 2014, according to the Oregon Public Employees Retirement Fund.

LPs have already granted Irving Place two investment period extensions for Fund III – one for one year and the second for three years, an LP said. It’s not clear if the firm can get the companies properly exited with a few added years, the LP said.

Fund III LPs are supposed to decide whether to sell their interests or stick with the GP by late June. The process could wrap up this summer, sources said.

“We’re right in the thick of it,” said a source familiar with the process.

Growing opportunity

In addition to Irving Place, Veronis Suhler Stevenson is trying to restructure every active fund it manages. That firm is attempting to raise new capital as part of the restructuring to help raise its third credit-related vehicle. Evercore is overseeing the VSS restructurings. 

Elsewhere, Canadian firm Edgestone Partners has been in the market since last year trying to restructure its second and third funds, housing remaining investments in one vehicle. UBS is running the Edgestone restructuring. 

Last year, LPs approved the restructuring of J.W. Childs Associate’s $1.75 billion, 2002 third fund. Canada Pension Plan Investment Board and Goldman Sachs bought five remaining assets out of Fund III in a deal valued at about $1 billion. Most J.W. Childs Fund III LPs chose to cash out of their interests in the fund, a source said at the time.

Restructurings, part of what is considered “direct secondaries,” have grown over the past few years. Direct secondaries, including fund restructurings and spin-outs, made up about $11 billion of the $42 billion total market volume in 2014, according to secondaries intermediary Cogent Partners.

Most LPs have been through restructurings. Nearly 80 percent of the 113 LP respondents in Coller Capital’s Global Private Equity Barometer Summer 2015 said they have been through at least one restructuring.

The opportunity is enormous. There were around 253 funds at least 10 years old with at least $100 million in remaining net asset value as of the third quarter, according to Pantheon. The aggregate net asset value for the funds was $92 billion, the firm said.

With the best-performing private equity funds routinely reporting that they are oversubscribed, the market may be creating the next batch of restructuring opportunities, the LP said. “Today we’re creating the zombies of the future,” the LP said.