GSO targets $3bn for second mezzanine fund

Blackstone affiliate GSO Capital Partners is looking to raise $3bn for its latest mezzanine fund, which recently received a $100m commitment from Oregon.

The Blackstone Group-owned GSO Capital Partners is in the process of raising its second mezzanine fund, targeting $3 billion.

The GSO Capital Opportunities II Fund will provide capital aimed at buyouts, recapitalisations, acquisitions and other types of transactions. The fund will make allocations in blocks of $75 million to $200 million with up to 85% being made in debt and the remainder used for equity stakes. 

GSO's second capital opportunities fund, like its predecessor, will try to exploit the lack of availability of credit for upper mid-market companies, seeking returns in the mid-teens on portfolio investments.

The first capital opportunities fund, raised in 2007, managed an internal rate of return of 9.2 percent and a net multiple of 1.14x invested capital through the end of the third quarter. Returns would have been stronger, if not for a sizable setback in an investment with Reader’s Digest, according to Oregon Investment Council, which recently approved a $100 million allocation for the fund.

GSO Capital Partners was part of an investor group led by Ripplewood Holdings that was involved in a failed bid to revive Reader’s Digest brand. The magazine was taken private in 2007 for $2.8 billion, but later filed for Chapter 11 protection in 2009, hurting returns for investors like GSO.

In July, GSO Capital Partners closed its $3.2 billion Capital Solutions Fund, which focuses on distressed investments and bankruptcy transactions.