Reading the ripples

Earlier this year, two high-ranking executives within Ripplewood Holdings, Tony Lee and Scott Spielvogel, left to start their own firm, One Rock Capital Partners.

Lee had been with Ripplewood for 13 years, and had stayed on at the firm even while many of the executives he had worked with departed. One of those, Ian Snow, left Ripplewood in 2005 to co-found SPG Partners, a mid-market private equity firm.

Tim Collins, the firm’s founder, tends to keep his cards close to his chest. In 2007, he hired Harvey Golub, former chief executive officer of American Express, to help build up the executive management of the firm. It’s not clear if Golub is still with the firm.

Collins: intent on a return to market

According to multiple market sources, Ripplewood halted fundraising for its third fund, which had an initial target of $2.5 billion, in 2008 and hasn’t re-started the process.

Collins confirmed to PEI via email that the firm does intend to re-enter the market to raise Fund III, but did not elaborate on exactly when this could happen.

Ripplewood remains best known for its turnaround of Japanese bank Long Term Credit Bank of Japan. Ripplewood and JC Flowers took over the bank in 2000 for $1.2 billion and renamed it Shinsei. Key to the deal was a guarantee from the Japanese government’s Deposit Insurance Corporation that it would buy back any bank loan that lost 20 percent or more of its value. Shinsei ultimately shifted some $10 billion in bad debt to the government under this agreement.

The bank was taken public in 2004, producing a windfall for its owners. Ripplewood and Flowers raked in some ¥2.2 billion (€20 million; $24 million) in advisory fees immediately after the deal, made $2.1 billion in profits from the IPO and later earned $2.8 billion when they sold a one-third stake in the bank.

However, the firm’s investments have not all proved as successful. Last year the firm suffered a blow when bankrupt publishing group Reader’s Digest was taken over by its senior lenders. Ripplewood had led an investor group in 2007 to make a $2.4 billion investment in the company, including the assumption of debt.

Ripplewood has suffered further in the eyes of limited partners by paying them an “in-kind” distribution of shares in RSC Holdings, an equipment rental company in which the firm owned a 34 percent stake. In August 2009, when the in-kind distribution was made, the share price stood at $8.18. On 14 June, the share price had dropped to around $6.71.

The firm’s first fund has the dubious distinction of being one of the worst performing funds in the portfolio of the Florida State Board of Administration in 2009. Information from the pension shows that Ripplewood Partners, raised in 1996, has a 12-month IRR of -84 percent. The fund’s IRR since inception stands at 14.4 percent with a return multiple of 1.82 percent.

Several placement agent sources tell PEI the firm’s future is bleak. One placement agent says it is an “open secret” that Ripplewood is winding down and another says the firm probably will not raise another fund. Colllins’ stated intention to return to the market would suggest otherwise.