Onex Widens Scope –

If there has been a Canadian trailblazer into the U.S. private equity market, it would have to be Onex Corp. The Gerald Schwartz-led group has been targeting U.S. assets for the past 20 years, and now the firm plans to expand its scope. In its most recent earnings call, Schwartz brought to light the groups intention to launch a distressed securities group that would primarily target U.S. companies.

He said that the firm is merely pursuing a strategy in which it has seen past success. Onex would use the vehicle to gain control of companies through buying the distressed debt. Schwartz noted that transactions would likely resemble its investments in Loews Cineplex and Magellan Health Services, both of which were acquired by Onex through their distressed securities.

Schwartz gave no indication as to how large the distressed fund would become, saying that the firm is only in the investigation stage right now. He added that no managers have yet to be chosen for the group and the firm is currently engaged in the process of interviewing potential candidates.

Onex Managing Director Andrew Sheiner said, We expect to start the distressed debt investing business sometime in 2005. We have acquired a number of companies in Chapter 11 in the past, through gaining control positions in the debt securities, and we want to better position ourselves to do this much more proactively in the future.

He said that Onex is anticipating a robust distressed debt cycle in the coming years that, will be born out of the unreasonably high leverage levels in the market today.

In a sense, we are in the business of acquiring attractive companies either entire companies or just interests in companies, Sheiner added. We can do this through traditional private equity, distressed securities or investing in the equity of undervalued public companies All of those activities complement each other very well and lead to more opportunities globally.

Sheiner would not give a definite size for the distressed vehicle, but he estimated that Onex could look for as much as $500 million.

With its expanded offerings, Onex has started to take on the supermarket approach, such as the model used by Blackstone Group or Bain Capital in the U.S. In addition to its standard private equity fund, the $2.2 billion Onex Partners I LP, and the distressed vehicle, Onex announced the creation of its $200 million Onex Real Estate Partners LP, fund, which will be used to acquire real estate properties. The firm also runs a $400 million North American small-cap fund, ONCAP.