Northstar Capital Closes Latest Mezz Fund At $515M

Firm: Northstar Capital LLC

Fund: Northstar Mezzanine Partners V

Amount Raised: $515 million

Northstar Capital LLC, a Minneapolis, Minn., middle-market firm that invests primarily in senior and subordinated debt, has held a final close on its latest mezzanine debt fund, finishing with $515 million in capital commitments.

The fundraising effort for Northstar Mezzanine Partners V LP took roughly a year, according to Scott Becker, managing partner. The original target for the fund was $350 million with a $450 million hard cap. It held a close at $488.8 million in mid-July. “The process went fairly smooth,” Becker told Buyouts. “We’ve found there’s a niche of institutional investors in the United States and Europe with an appetite for a pure-play mezz fund.”

Roughly a third of the money came from insurance companies, a third from pension funds and the remaining third from a mix of European funds of funds, foundations and endowments, Becker said. The size of the latest fund represents a fairly large step-up from Northstar Mezzanine Partners IV LP, which closed in 2005 with roughly $303 million in capital commitments. Douglas Mark, also a managing partner, said the increase is fitting given how the credit crunch has deepened over the past few months.

“The dearth of senior debt has opened up opportunities for mezzanine as well as unitranche,” he said. “There are very few senior players out there right now. You can count them on one hand.” That said, Charles Schroeder, also a managing partner, said the firm plans to be cautious with new investments. “We still have to be selective,” Schroeder said. “It’s not hard to figure out why the senior guys are staying away. It’s difficult to predict rising EBITDA at times like this. Low leverage is a concern. The size of the equity check being written keeps creeping up.”

Northstar Capital, beyond providing debt, also looks to acquire preferred or common stock in its deals. The firm’s typical investment ranges in size from $5 million to $30 million. It looks to hold investments between five and eight years.

The firm takes a generalist approach by industry, although it does have some special interest in value-added distribution, light manufacturing, business services, financial services, education and specialty health care, according to its Web site.

Northstar Capital targets companies with “proven sponsor groups and experienced management teams” in both the United States and Canada. It tends to invest in companies generating annual revenue of between $20 million and $300 million and a history of stable cash flow and profitability.

Northstar Capital has already made a number of investments using capital from Fund V. These include an investment of $9 million (a $7 million subordinated note and $2 million in common equity) in Coining Inc., a Saddle Brook, N.J., maker of metal stamping products; an investment of $4.5 million (a $4 million subordinated note and $500,000 in preferred and common equity) in Superior Health Linens LLC, a provider of linen renting and cleaning services for hospitals and nursing homes; and an investment of $19.5 million (an $18.5 million subordinated note and $1 million in equity) in Contract Land Staff LP, a provider of land right-of-way services and land record management services.