JLL Partners is trying to raise up to $200 million in preferred equity to support portfolio companies in its seventh fund, three sources told Buyouts.
Preferred equity has become one of the options for GPs who need additional capital for existing portfolio companies. Capital is needed to both prop up ailing portfolio companies in the downturn, as well as to chase add-on opportunities for existing investments in the lower-valuation environment.
JLL is not working with an adviser on the deal, sources said. It’s not clear if an investor has yet emerged on the transaction.
JLL closed Fund VII on about $1 billion in 2016. The pool has just over $1 billion in net asset value remaining, one of the sources said. Fund VII was generating a 1.36x total value to paid-in multiple as of April 30, according to performance information from New Jersey Division of Investment.
Investment in Fund VII include Xact Data Discovery, provider of eDiscovery, data management and managed review services for law firms and corporations; Aviation Technical Services, a provider of transport aircraft maintenance; and Point Blank Enterprises, which makes equipment for law enforcement.
JLL was formed in 1988 by Paul Levy, an ex-Drexel Burnham Lambert restructuring executive. Levy leads JLL along with managing directors Frank Rodriguez, Kevin Hammond, Daniel Agroskin and Eugene Hahn.
The firm has been in market raising its eighth fund targeting $1.25 billion. Fund VIII had raised more than $686 million as of November, Buyouts previously reported.
Preferred equity is like a loan to the fund, secured by the assets. Preferred-equity investors are first in line to get paid back principal and interest when the GP sells portfolio companies or makes distributions. Anything above that flows to LPs as profit. This type of investment allows the GP and LPs to stick with the fund without having to sell their interests and miss out on any future profits.
Several secondaries firms offer preferred equity, such as Whitehorse Liquidity Partners and 17Capital.
Numerous GPs are considering preferred equity investments in the downturn as a way to prop up older investments and secure capital for add-ons in fully deployed funds, sources told Buyouts.
GPs also are considering other forms of fund-level financing, including NAV loans secured by the net asset value of the fund rather than one investment.
Action Item: Read JLL’s Form ADV here: https://bit.ly/3eP0YK8