York Street raises $700M from one LP

Some public pensions complain that they’re frozen out of private equity funds because they aren’t allowed to invest enough money to make it worth their while. But the Ontario Teachers’ Pension Plan isn’t lodging that complaint, at least not about the second fund raised by York Street Capital Partners.

Ontario Teachers’ private investment group, Teachers’ Private Capital, is the sole limited partner in the $700 million York Street Mezzanine Partners II. Teachers’ Private Capital was also the sole limited partner in York’s inaugural $350 million fund in 2002. It also had co-investment rights that it exercised to the tune of more than $120 million. Teachers’ Private Capital will continue to co-invest alongside Fund II.

“Having one LP really means more flexibility for us as far as types of debt securities we can invest in, and we’ve got a time frame on our investment period that has more flexibility, as well,” says Christopher Layden, a managing partner with York Street.

Bedminster, N.J.-based York Street has already begun making commitments from its new fund. York Street provides a variety of debt and mezzanine financing to private equity sponsors, mostly focused on U.S.-based middle market buyout deals. It invests in such industries as consumer products, industrial, health care services, transportation and household durables.

York Street plans to invest fund II over the next six years. The firm expects to invest between $25 million and $60 million per deal with a ceiling of about $80 million. Layden says that York Street has a comfort level with deals that have a $15 million EBITDA or greater, and that the portfolio companies from fund I have an average EBITDA of about $35 million.

Jim Leech, a senior vice president with Teachers’ Private Capital, says that his group’s decision to invest again with York Street was an easy one, given that York Street has good returns of 20% or more. He declined to disclose much about the fee and carry structure of the York Street’s new fund except to say that it is “within market.”