ICG to stockpile £826m in dry powder

The listed debt investor has launched a fully underwritten rights issue and has raised €475m for its 2008 Recovery Fund.

Intermediate Capital Group (ICG), the listed European buyout debt investor, this morning unveiled a £351 million (€408 million; $574 million) rights issue to allow it to buy up discounted buyout debt and participate in the refinancing of existing buyout deals.

The news sent ICG’s shares up 10 percent this morning to £5.43.

“The extraordinary state of the credit markets, the absence of liquidity in the banking sector and changes in

It is now possible to achieve equity-like returns in some senior debt assets.

Tom Attwood

the competitive landscape have provided ICG with significant opportunities to invest at attractive prices in the primary and secondary markets for buyout capital,” said Tom Attwood, ICG managing director, said in a statement.

ICG reported a shift in value from buyout equity to debt, which it said will favour investors with the ability to invest across companies’ entire capital structure. “It is now possible to achieve equity-like returns in some senior debt assets,” Attwood told PEO.

The rights issue is being offered at 121 pence per share, a 39 percent discount to the ex-rights price based on Wednesday's closing price. JPMorgan Cazenove and RBS Hoare Govett are acting as joint sponsors, joint financial advisers and joint lead bookrunners. Credit Suisse is acting as joint bookrunner, and HSBC and Lloyds are acting as joint lead managers.

ICG has also negotiated an extension on the maturity of a £395 million of its bank debt, in addition to an extension arranged last month of £150 million which will not mature until 2013.

As well as the rights issue and debt extension, ICG is currently raising a new vehicle: the ICG Recovery Fund 2008. It has already raised €475 million of equity and debt commitments, said the firm, and is expecting to hold a final close targeting around €600 million during the fourth quarter of 2009 or the first quarter of 2010.

ICG was initially set up as a mezzanine debt investor, but has for the last 10 years widened its focus to include more investments in senior leveraged loans.

The latest developments follow news last month that ICG had made its first loss since it was founded 20 years ago. The firm revealed significant impairments on its weakest performing assets and made a pre-tax loss of £67 million, due mostly to £266 million of gross provisions for portfolio companies. In today’s trading update, the firm stated that it was not expecting the number of “concerning” assets in its portfolio to increase materially when it conducts its next quarterly performance review later this month.