Kohlberg Kravis Roberts has hired former GSO Capital Partners managing director Lee Stern to originate and structure mezzanine investments.
The firm’s mezzanine efforts began in 2008, while KKR launched a fund dedicated to mezzanine investments earlier this year that a source told PEO in a prior interview is targeting between $1 billion and $3 billion.
At GSO, Stern focused on originating private debt and equity investments. Prior to working there he was executive vice president and chief transaction officer at Technology Investment Capital, a business development company. He led the credit team that originated and structured investments at the firm.
Stern helped found Thomas Weisel Partners in 1999 and served as a principal at its predecessor, Montgomery Securities. He has also held managing director positions at Kidder, Peabody & Company, Drexel Burnham Lambert and LF Rothschild, Unterberg, Towbin.
“While we have been making select mezzanine investments for several years through our credit platform, we are now increasing our focus on this area due to what we believe to be favourable market conditions,” Frederick Goltz, head of KKR’s mezzanine business, said in a statement.
KKR’s mezzanine fund will invest globally in “large” companies through senior notes, subordinated debt and preferred stock. Mezzanine financing is unsecured debt with high interest rates that can produce higher returns than traditional bank debt. Mezzanine lenders can often convert their stake to an equity stake through warrants.
Other firms have established presences in the mezzanine space in the past few years, including The Carlyle Group, which closed its second mezzanine fund in March on $553 million. Babson Capital Management, part of international financial services firm MassMutual Finance Group, closed mezzanine and private equity fund Tower Square Capital Partners on $1.58 billion in December 2008.
The Blackstone Group, Apollo Management and Goldman Sachs Principal Investment Area also manage mezzanine debt.