MatlinPatterson gets extension on Fund III

The firm, co-led by Mark Patterson, was granted a one-year extension on the investment period for its $5bn third fund.

New York-based MatlinPatterson has secured approval for an extension of the investment period on its third fund, which closed on $5 billion in 2007, for one year. The investment period will now end July 2012, instead of July 2011.

The firm declined to comment.

Distressed investment opportunities have become scarcer in recent months as the market has recovered somewhat from its lows at the end of 2008 and early 2009, which is why the firm asked for the extension, sources told PEO.

The option to ask for the investment period extension was built into the limited partner agreement for MatlinPatterson Global Opportunities Fund III, sources said. Fund III is about 70 percent drawn, though unlike more traditional private equity funds, terms of the vehicle give it expansive abilities to recycle proceeds from exits made during the drawdown period back into the fund, according to sources. This has the effect of freeing up further investment capital from the fund and extending the partnership’s life.

LP sources told PEO they have had discussions with the firm about a fourth fund, and sources said fundraising for a new global fund is 18 months to two years away. The firm discussed future fundraising plans at its annual meeting in May.

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Patterson

MatlinPatterson is not alone in asking for an extension of its investment period. Many firms have approached LPs to ask for more time to invest capital after waiting on the deal sidelines through the downturn.

One consultant source told PEO more firms have asked for investment period extensions in 2010 than ever before, with the possible exception of the period following the tech bubble implosion in the early 2000s, when venture firms started asking for extensions.

While MatlinPatterson is not unique in its request for an extension, the firm will need further time and effort to show positive returns to potential LPs for a fourth fund. MatlinPatterson's third fund has a .95x return multiple, according to the Oregon Investment Committee. The firm's first fund, which closed in 2001, has a 1.71x return multiple and a 16 percent internal rate of return.

Fund II, which closed in 2003, was returning .76x as of the first quarter of 2010, according to a source. MatlinPatterson raised about $165 million last year as an annex to Fund II to support portfolio companies. Supplementary Fund II was anchored by a commitment from Landmark Partners.

The firm, run by Mark Patterson and David Matlin, experienced some wipeouts in the downturn, including its entire investment in US home mortgage lender Thornburg Mortgage. The firm last year surrendered all its stock in the company – about 120 million shares – for no compensation, according to a filing with the Securities and Exchange Commission.

The firm bought into the mortgage company in 2008, committing to invest $450 million in the company's

More firms have asked for investment period extensions in 2010 than ever before.

senior subordinated secured notes as part of the company's efforts to raise $1.35 billion. The investment was made from MatlinPatterson's third fund.

MatlinPatterson's portfolio company US regional airline ATA Airlines collapsed into bankruptcy in 2008. The firm invested in ATA in 2006 after helping to pull it out of Chapter 11 protection with a $30 million bankruptcy financing loan.

Portfolio-company bankruptcies are not unusual in the distressed investment strategy, which requires GPs to back companies that already are financial challenged.

The firm also has experienced turnover in the past few years. Last year, managing partner Lap Wai Chan left the firm for undisclosed reasons, an LP source told PEO. According to a profile of Chan on Forbes, Lap worked at MatlinPatterson from July 2002 to September 2009, and continues to serve as a consultant to the firm.

Other executives that have left the firm include partners Frank Plimpton, Ken Campbell and Santiago Born, who was running the firm's Brazil office. The firm has brought in new partners, including Gregory Eng, Mark Palmer and Greg Ethridge.