With the debt Fund the Rubicon was crossed

On a plateau. The crisis offers opportunity management companies of first choice to enter a door operations backdoor, debt funds. So far, the single "departure" granted to the mixing of the genres between debt and capital had been debt mezzanine, intermediate between the senior bank debt and capital. With the debt Fund, the Rubicon was crossed. More than 30 billion dollars was raised in the world by funds for investments in debt. Amounts that the big names in the investment Blackstone, TPG and Apollo were devoted to time share repurchases of portfolio of LBO debt to investment banks pressed alleviate their balance sheets.

But with the release of credit institutions and funds from CDO ("collaterized debt obligation"), a devastated field available to the Fund: the financing of LBO operations themselves. Only to to be said for the moment, Goldman Sachs closed October 8, a Fund of $ 10.5 billion business bank will invest in senior debt to "finance the LBO.

Profitable redemptions

For the time being, the main subject of these funds was to buy back the debt on the secondary market to the porter to his maturity. "Creates nothing that redeem LBO debt, worth between 300 and 400 basis points, at a price lower than its face value, performance and even more if you buy it with a leverage effect and only 25 of own funds", explains the professional of a fund that bought for more than 2 billion euros in the market in recent months.

In France, Tikehau Fund, co-founded by Bruno de Pampelonne, former boss of Merrill Lynch in France, that handles 240 million of funds and mandates of debt, entered this market to bring the debt in the long term. "We used either debt bond portfolios, either décotés CDO securities or we intervene in mezzanine debt with a view to long-term performance." Opportunities in the secondary market are many today, and new operations show a better profile of risk/return in the past.

Conflicts of interest

Another strategy: use debt as a Trojan horse to gain access to the capital of companies. "If there is a any breach of"covenants"(clauses in the loan agreements providing for the respect of certain ratios financial keys, Editor's note), the majority debt Fund is entitled to become a shareholder", explains a professional. The most exemplary case being Eurotunnel.

Rest a final approach, more contested by the other holders of debt: the "buy-back", the redemption of debt by a Fund of investment of its own companies in the portfolio which he is a shareholder. For a Fund, it is the way to improve the return on investment of its shareholdings, by buying the debt at a décoté price, and to counter any strategy that would allow a competing Fund to control the company through this. PAI was used in the Lafarge Roofing, as Bridgepoint folder which acquired 21.8 million pounds of debt from Fat Face with a discount of 44, or the Danish Telecom TDC operator who bought for EUR 200 million of its publicly traded debt around 90 of its face value. The other creditors, for their part, are up in arms for the conflict of interest... between debt and capital. "An industrial society well buys its own obligations." "It is the false argument that weakens the operation," says practitioner.