Bank of Scotland Corporate, the investment banking arm of HBoS, and London-listed private equity secondaries fund Bear Stearns Private Equity have set up a joint venture to invest €233 million ($316 million) in a portfolio of eight European mezzanine funds.
The structured products arm of Bank of Scotland will manage the investment portfolio while also providing debt facilities. The vehicle, BoS Mezzanine Partners Fund, is owned equally by Bank of Scotland and the private equity arm of Bear Stearns. Last month, Bear Stearns raised $309 million (€228 million) for its private equity arm and it will use this to place $75 million of equity in the vehicle.
Bear Stearns Private Equity’s managing director Troy Duncan said: “The dynamics in the mezzanine industry mean that senior side covenants are less restrictive than they have been in the past because of the vibrant distressed debt market.” He explained Bear Stearns’ decision to enter the mezzanine market is because despite it being competitive the cost of capital is low as it is a risk-adjusted investment.
Robert Mitchell, director of structured products at Bank of Scotland, said “We sought out Bear Stearns as a partner because it is not in the mezzanine space and it wanted exposure to funds in this space and was willing to put up a large stake paving the way for future joint mezzanine investments.”
Bank of Scotland was advised by London-based private equity advisory firm Transparent Capital Limited.
Mezzanine debt has attracted a growing stream of investment on the back of recent private equity success, with Intermediate Capital Group closing the biggest ever mezzanine fund in March at €2.25 billion.