Mezzanine shops have descended upon the fundraising market en masse, emboldened by the fact that the credit crunch is having long-lasting effects on leveraged lending. Altogether, Buyouts is tracking 23 open U.S. mezzanine funds seeking a combined target of $12.8 billion.
York Street Capital Partners just hit the market with its third mezzanine fund, York Street Mezzanine Partners III, looking to raise $750 million, according to a source with knowledge of the situation.
The firm closed York Street Mezzanine Partners II in February 2006 with $700 million and wrapped its first fund with $350 million in 2002. The Bedminster, N.J.-based shop’s previous vehicles had one limited partner, Teachers’ Private Capital, the private equity arm of Ontario Teachers’ Pension Plan. For the new fund, the firm reportedly intends to broaden its LP base beyond its previous sole backer.
According to a second source with knowledge of the matter, the firm has invested about $550 million of Fund II, and considering that some capital is likely reserved for follow-on investments, “they are very low on capital,” said the source. York Street declined to comment.
York Street makes mezzanine investments and equity co-investments for acquisitions, buyouts, growth capital, refinancings and recapitalizations in mid-market companies. The firm puts up to $80 million into each deal, with additional capital available for growth. Industries of interest include business and health care services; consumer goods; food and agriculture; manufacturing; restaurants; and transportation.
Also seeking money for a mezz vehicle is Oaktree Capital Management, which is now raising its $2.5 billion-targeted Oaktree Mezzanine Fund III. The capital pool is earmarked to help fund LBOs of companies with enterprise values from $150 million to $750 million. Oaktree Capital usually participates in 30 to 50 deals per fund, but the firm’s second mezz vehicle, vintage 2005, made 70 investments. The Alaska Permanent Fund Corp. recently pledged $250 million to the firm’s latest endeavor.
Seeing the light at the end of the tunnel is Maranon Capital, which is inching toward a $250 million goal for its debut mezzanine pool, Maranon Mezzanine Fund LP. The Chicago-based firm has been raising the fund for almost two years, and has so far collected $205 million. Pledges have come from the American National Insurance Co., Arizona State Retirement System, Capricorn Investment Group, and Illinois Teachers Retirement System. Mallory Capital Group is serving as placement agent. In addition to mezzanine investments from $5 million to $30 million, Maranon Capital offers revolving lines of credit up to $20 million; first and second-lien term loans ranging from $10 million to $60 million; and equity co-investments up to $10 million.
And crossing the finish line is CapitalSouth Partners. The Charlotte, N.C.-based lower mid-market firm recently closed CapitalSouth Partners Fund III LP with $350 million. CapitalSouth started raising the vehicle in May 2007. Backers include HSBC, Kentucky Teachers Retirement System and SunTrust Bank.
The firm makes buyout and mezzanine investments in companies in the business services, consumer goods, health care, retail and technology sectors, mainly in the southern United States. CapitalSouth cuts checks of $5 million to $25 million and targets companies with annual earnings of $5 million to $15 million.