TH Lee Affiliate Targets $2.5 Billion For Credit Fund

THL Credit Group is targeting $800 million in equity for its THL Credit Partners LP fund. With leverage, the fund will come in around $2.5 billion, sources told Buyouts.

The affiliate of Boston buyout firm Thomas H. Lee Partners held a first close on $150 million in equity in September, which would be levered up to $500 million in buying power. The group is about halfway to $800 million and expects to hold a second close in the next month.

The fund, THL Partners’s first debt-oriented vehicle, invests in new leveraged loans, structured credit, mezzanine financing and minority investments. It targets new credits with better terms than debt originated during the buyout boom. But unlike many credit funds raised in wake of the credit crunch, the fund is shying away from hung bridge loans. Fund managers see the loans as too risky because of their excessive leverage and lack of covenants.

The credit group also provides capital to public and private companies for growth, recapitalizations, buyouts and acquisitions. Customers include companies generating $20 million to $30 million in EBITDA that have sidelined plans to sell or go public and need day-to-day capital. In particular, the fund’s managers like companies in business services and light manufacturing with a diversified business and good growth prospects.

The fund is soliciting equity commitments from typical buyout fund investors as opposed to just investment banks, which provided the capital for the first close. A source familiar with the firm told Buyouts that the response has been “gratifying,” but conceded some limited partners are apprehensive because of the potential for lackluster returns from some credit funds investing in highly levered, low-covenant, LBO-backed debt.

THL Partners formed the Boston-based credit group last summer. Prior to joining the group, James Hunt, CEO, was CEO of Bison Capital Asset Management LLC, which he co-founded in 2001. He was also previously the CEO and chief investment officer at Evercore Investment Corp. Other executives of the group include Sam Tillinghast, president and chief operating officer, who was formerly the head of the private placement group for AIG Global Investment Group; and Gregg Hammer and Christopher Ochs, executive vice presidents who co-headed the leveraged capital group at AIG.

The group’s executives declined to comment.—B.V.