Ex-UBS exec, Florida billionaire to raise $1bn distressed fund(3)

Jeffrey McDermott, formerly co-head of investment banking at UBS, and billionaire Michael Heisley are targeting $1 billion for the debut fund of a new, distressed-focused private equity firm.

UBS’s co-head of investment banking, Jeffrey McDermott, left the bank last week to join American billionaire Michael Heisley in starting a distressed-focused private equity firm, which aims to raise $750 million (€551 million) to $1 billion for its debut fund.

Stony Lane Partners begins its road show next week, and hopes to finish its fundraising by the year’s end.

Stony Lane will focus on distressed and bankrupt industrial businesses, particularly those that require operational as well as financial restructuring. This is a strategy that Heisley has been following for 30 years at his own investment firm, Heico. He said he feels confident that a great number of businesses are currently overleveraged, and he anticipates that a market downturn will soon create opportunities in distressed investing.

“This isn’t exactly new territory for us,” he said, referring to Heico. “We’ve already been through two or three of these [cycles]. I feel very comfortable that we are very close to the top of the [US market] cycle.”

And when the market turns, he said, some companies will find it difficult to re-leverage themselves. He predicted that in the next two to three years there will be a “robust” market for distressed companies.

Named after the street address of a house Heisley famously sold for the $150,000 he used to found Heico, a company now worth $2.5 billion, Stony Lane will be headquartered in Chicago and New York. It currently has 10 employees. Stony Lane will work closely with Heico to take advantage of the older company’s experience in improving portfolio companies’ operations.

Many private equity firms have expanded their distressed debt and restructuring businesses. The Blackstone Group, London-based Park Square Capital, Cerberus Capital Management, and Oaktree Capital Management all invest in distressed companies.