Avenue Capital enters control game

Distressed debt giant, New York-based Avenue Capital Group, will launch a fund with Pagasus Capital Advisors to tap the later firm’s expertise in control investment strategies.

Avenue Capital, with $5 billion (€3.9 billion) in capital under management, announced today the firm is “joining forces” with Greenwich, Connecticut-based Pegasus, another distressed specialist it has sometimes partnered with on deals.


Marc Lasry, a co-founder and managing partner of Avenue Capital, said his firm has typically sought to buy debt securities in troubled companies, convert to equity and sell out at a profit. This strategy did not include taking control of the target company. Pegasus, he said, was experienced in the control strategy.


“This is a new line for us,” Lasry said. “We’re going to be investing in companies and trying to take those companies over.”


In a statement, Lasry said the addition of the Pegasus team would bring a “private equity practice” to Avenue Capital.


Founded in 1995, Avenue Capital last year raised a $2 billion fund for investment in Asia and a $3 billion fund for US activity.


Lasry said his firm had recently seen “many middle-market companies having problems” and in need of capital. He added: “We are now trying to take advantage of the fact that you can buy these companies on the cheap.”


Lasry said the skills required to operate companies acquired were not resident at Avenue Capital prior to its merger with Pegasus, which is headed by founder Craig Cogut. “I’ve always liked the control strategy, but the problem I’ve always had is its very hard to incorporate into a debt strategy unless you have the right people,” Lasry said. “It’s hard for debt people to control companies. What’s hard is what you do when you end up having control. I think what Pegasus brings to the table is the ability to manage companies and actually bring value.”


With the Pegasus team on board, Avenue Capital now plans to raise capital for a control-oriented distressed fund of as much as $500 million.


In 2002, Pegasus Capital invested $25 million in off-road vehicle company Cannondale Corporation. The previous year, it teamed with distressed specialist KPS Special Situations Fund to acquire steel and metal products company Genesis Worldwide for $20.5 million.


Pegasus, founded in 1996, currently has $800 million under management, according to the press release. The firm’s partners also include Rodney Cohen and Jonathan Berger.