A group of limited partners in Sun Capital Partners $6 billion fifth fund is in discussions with the firm to reduce outstanding commitments, according to a source close to the situation.
The LPs would like to cut their original commitments because of “liquidity issues” and “asset allocation” imbalances, the source said. The talks are ongoing and no decisions have been made.
Sun Capital declined to comment. Several Sun Capital LPs did not return calls for comment.
Several private equity firms have allowed LPs to shrink commitments over the past year, including TPG and Permira.
Sun Capital, which invests in turnaround and distressed situations, has had at least 10 portfolio companies go bankrupt in the market downturn. The firm put three of its companies – Fluid Routing Solutions, Big10 Tires and Anchor Blue – into bankruptcy, restructured the capital structures and brought the companies out of Chapter 11.
Another of the firm’s portfolio companies, Kellwood, a maker of women’s apparel, was squeezed a few months ago when about $140 million of its unsecured debt came due. The company couldn’t refinance the debt because of the tight credit markets. Kellwood eventually came to agreement with lenders on a bond exchange for new secured notes due 2014.
The firm earlier this year decided to stop investing from its hybrid hedge fund, Sun Capital Securities Fund, which has collect more than $1 billion to take minority stakes in public companies. Sun Capital will return money to investors as it exits investments from the fund.
The firm is also shifting $150 million out of funds IV and V to reinvest into portfolio companies in the $1.5 billion fourth fund.