Morgan Stanley gets active with mezzanine

The bank's $956m dedicated mezzanine vehicle, which closed in January, provides financing for private equity deals in which it can also make direct equity investments and co-investments.

Morgan Stanley Credit Partners has completed a $43 million mezzanine loan in conjunction with Parthenon Capital Partners and Lovell Minnick Partners’ investment in HD Vest Financial Services.

As part of the deal, Morgan Stanley has also made an equity co-investment in HD Vest, which provides financial solutions to retail investors through a group of more than 4,800 tax professionals.

Morgan Stanley Credit Partners raised $956 million for its first dedicated mezzanine vehicle in January. The fund targets buyouts, refinancings and recapitalisations in North America and Europe, and has invested roughly $240 million in seven portfolio companies. Morgan Stanley Credit Partners targets investment sizes of $20 million to $50 million and may take direct equity positions and co-investments.

Morgan Stanley Credit Partners was established in 2009 within Morgan Stanley’s merchant banking division. The group is headed by managing director Hank D’ Alessandro.

“We think today the North American market is more attractive from a risk adjusted basis relative to Europe, because of the difference in the current coupon rates for high-yield,” D’ Alessandro told Private Equity International in a prior interview.

The firm was unavailable for comment at press time.

Other firms that have been active making mezzanine investments include The Blackstone Group’s debt affiliate GSO Capital Partners, which recently closed on roughly $2.1 billion for its second GSO Capital Opportunities Fund. Sources expect the vehicle to pull in more than $3 billion by final closing in the first quarter next year. Kohlberg Kravis Roberts also recently closed its debut mezzanine fund on $1 billion.

Also last week, Intermediate Capital Group held a first close on €1.1 billion for its fifth European fund, which is targeting €2 billion for mezzanine investments in Europe.

Morgan Stanley Private Equity, a separate investment division at the same firm, has completed about $6 billion in private equity transactions since 1985.