Onex to establish listed distressed debt fund

Onex Corporation is taking public an investment fund that will buy into senior debt in the US, selling shares, or trust units, in the vehicle at C$10 (€6.3;$9.3).

Onex declined to discuss how much it is trying to raise from the IPO. The fund, called OCP Credit Strategy Fund, will buy senior high yield debt from North American issuers. The debt will yield 7 percent, Onex said in a filing.

The fund will target investments that meet certain criteria, including high levels of assets and/or cash flow coverage, attractive total return potential through a combination of current income and capital appreciation and an anticipated company-specific event that will trigger price appreciation prior to stated maturity, Onex said.

Onex Credit Partners, which will manage the fund, looks to buy debt obligations from companies experiencing financial or operational stress.

“OCP often identifies specific anticipated events, such as a refinancing or restructuring, that OCP anticipates will cause an investment to appreciate in value,” Onex said in the filing. The fund will not use leverage in its investments.

The fund will be in a position to take advantage of opportunities in the credit markets cause by the global financial downturn. More than $1.7 trillion of senior debt is due to mature between 2011 and 2014 and that debt will need to be refinanced or restructured before maturity, Onex said.

“By purchasing these debt obligations at a significant discount to par, the portfolio can generate attractive returns from current cash yield, as well as capital appreciation as these obligations are repaid at or before maturity,” Onex said.

Onex Credit Partners is a unit of Canadian private equity firm Onex Corporation. Onex has been raising $3.5 billion for its third buyout fund.