Prudential Wraps $619M Mezz Fund

Prudential Capital Group, the private capital business of The Prudential Insurance Company of America, this month wrapped up its first U.S.-focused mezzanine fund open to outside investors. Prudential Capital Partners LP, which was originally targeted at $500 million, surpassed its goal, bringing in $619 million. Additionally, the senior investment officials at Prudential Capital Group have committed $20 million in a co-investment fund that will invest alongside the mezzanine fund.

The mezzanine fund is being managed by Principals Matthew Chanin, Jeffrey Dickson, Mark Hoffmeister and Allen Weaver. Prudential Capital Group, which has long made mezzanine investments supported by capital from its parent, opened this fund to outside investors to access a larger pool of capital.

“It was beyond what Prudential itself could commit,” said Weaver, principal of the fund and co-head of Prudential Capital Group. “Prudential committed $200 million to the fund, so it?s a significant investor, but we felt that we could generate enough investment opportunities… so we wanted to upsize and build our investor base.”

Prudential Capital Partners LP held a first close in September of last year, bringing in $173 million. The fund, which will invest $25 million to $30 million per deal, was not marked with a formal cap, but the principals of the fund did not want it to raise much more than $600 million, Weaver said.

Though the fund will not seek out any particular industry, the group is attracted to good cash flow companies with strong management teams, which typically leads the firm to old economy businesses, he added.

“You won?t see a lot of technology,” Weaver said. “About half the fund will probably be in manufacturing-type businesses and service industries.”

Prudential?s mezzanine investments will be limited to domestic businesses, as well.

To date, the fund has made four investments. Prudential Capital Group in January 2000 funded $39 million in senior debt, mezzanine and equity to finance two acquisitions by Motorsport Aftermarket Group Inc., a holding company created by private equity firm Duff, Ackerman & Goodrich to acquire companies in the motorcycle aftermarket parts industry.

In October 2000, Prudential Capital provided $19 million in mezzanine debt for BI Inc., a manufacturer and provider of electronic monitoring equipment. The financing was part of a $84.9 million going-private transaction led by Kohlberg & Co.

The fund in December pumped $25 million worth of subordinated notes into the recapitalization of Hirsh Industries Inc., and most recently, Prudential provided $25 million in mezzanine and $15 million in senior notes for Harvest Partners? refinancing of portfolio company Home Care Supply Inc.

“What?s different about our fund is our regional investment network,” said Weaver. “We have five offices around the country, which is a resource that most funds don?t have access to. So we?re about to source more deals, look at more deals, find deals earlier in the deal process than the average fund.”

Weaver said the regional investment network, which includes offices in Atlanta, Chicago, Dallas, New York and San Francisco, was an attractive element to many of the fund?s limited partners. Investors in the fund include pension funds, foreign and domestic money managers, investment banks, high-net-worth individuals and Prudential?s general account members.

At a time when buyout funds are having a tough time finding the capital to meet their initial fund-raising targets, mezzanine funds have been having a relatively easier time. In the second quarter this year, Audax Group, Gleacher & Co. and Brown Brothers Harriman all held strong closes on their mezzanine funds, bringing in a total of $714 million.

Contact Christa