Roundtable Moves Into Debt

Fund: Capital Fund

Fund Type: Sub debt

Firm: Roundtable Healthcare Partners

Amount Raised: $200 million

Target: $150 million

Placement Agent: None

Legal Counsel: Davis Polk & Wardwell

Tired of time-consuming negotiations over rates and warrants, Roundtable Healthcare Partners has opted to raise its own subordinated debt fund, which will make investments alongside the firm’s private equity vehicle. The new $200 million fund closed last month.

“We have been frustrated with the levels of availability of sub debt for small, mid-market deals,” Roundtable Co-founder and Managing Partner Lester Knight told Buyouts. “In addition to the process being time-consuming, all the deals we’ve done previously had required warrants or equity contributions from the lenders… It’s like we’ve been giving away our own equity returns.”

Lake Forest, Ill.-based Roundtable constructed the Capital Fund as a fixed-term, no-warrant vehicle. Knight said the design makes it possible to avoid any conflicts since it removes the need to negotiate terms between the equity and sub debt components.

Knight would not disclose what the fixed rate was, but did say the fund would lend at what could be considered “standard terms and conditions.”

As for the issue of potential overexposure to a single asset, “Our investors were very comfortable with that,” Knight said. “We are fairly conservative, lower-risk investors. Healthcare is all we do, so we are able to conduct extremely thorough due diligence. We also use less leverage than most—3.5x to 4x on average. And because we have our operating sources inside the GP, [limited partners] were very comfortable investing in this new vehicle.”

The Capital Fund was originally targeted to raise $150 million. Ten percent of the new fund’s commitments are from Roundtable itself, while the remainder comes from 44 investors in Roundtable Healthcare Partners Fund II, which closed oversubscribed in 2005 with $500 million, Knight said.

Going forward, the Capital Fund will put between $10 million and $20 million into deals that require a sub debt component, Knight said. He added that Roundtable will no longer use outside sub-debt funding.

Roundtable is about to make its third investment out of its second buyout fund, and that deal will be first investment alongside the Capital Fund.

Roundtable platform investments can vary in enterprise value from $20 million to $150 million, typically falling within the $50 million to $100 million range. The firm often employs a 50%/50% equity-to-debt ratio, but will reach as far as 40%/60% on some deals.

In line with the closing of the Capital Fund, three Roundtable professionals have been promoted to support the firm’s growing investment activities. David Koo has been promoted to senior partner; R. Craig Collister has been promoted to partner; and Joshua Saipe has been promoted to vice president. —A.N.