Park Square Capital, a London-based debt investor, has launched a €1.25 billion ($1.69 billion) credit fund as it looks to cash in on Europe’s booming leveraged lending market.
The Credit Opportunities Fund has attracted €315 million in equity commitments – more than any other comparable fund – which with leverage is expected to have a total firepower about €1.25 billion. It will invest in first and second lien, mezzanine, high yield and distressed debt, as well as equity financing.
The fund is intended to complement Park Square’s existing €1.05 billion mezzanine fund, which was raised after the firm’s foundation in 2004. The latter has already invested about €920 million in 12 deals, including co-investment from limited partners, and is more than 50 percent committed. Unlike the mezzanine fund, however, the credit opportunities fund will also use leverage to boost returns.
Park Square chief financial officer Nikola Sutherland said the mezzanine fund did have some flexibility to invest in other types of paper, but that the new fund would be more focused on senior debt. “We have similar flexibility as before, but this fund will be more targeted at the upper end of the capital structure,” she said.
Raising the new fund gave the firm a number of advantages, she said: “We’re now very large in size – we have two funds, and with the co-investment from our limited partners, we can commit up to €500 million in a single transaction. It also gives us the flexibility to structure deals in lots of different ways, so we can tailor transactions to the individual sponsor. Plus it’s very patient, long term capital – there’s no pressure to ‘ramp up’ quickly.”
The fund will have the flexibility to change its investment strategy over time depending on market conditions, which means it will take a “wait and see” approach to deciding how much of the fund will be committed to any one area.
There are just three limited partners in the new fund, all of whom also invested in the mezzanine fund: Caisse de dépôt et placement du Québec, Ontario Teachers’ Pension Plan and a third unnamed Canadian group, believed to be the Public Sector Pension Investment Board. Sutherland admitted the firm had no shortage of demand: “It’s fair to say that we could have raised more, but this felt like the right size of fund.”
Park Square was set up by an illustrious trio of debt bankers: managing partner Robin Doumar, previously head of Goldman Sachs’ mezzanine business, David Cottam, the former head of equity capital markets at BNP Paribas, and Michael Small, ex-director of Dresdner Kleinwort’s debt principal finance and securitisation group.
The volume of leveraged loan issuance more than doubled to over €150 billion between 2004 and 2006, according to research firm LCD Comps, who also estimate that €50 billion of leveraged loans were issued in the first quarter of this year alone.