KKR Special Situations Fund LP will invest in North America, Europe and Asia, according to Jamie Weinstein, the firm’s San Francisco-based co-head of special situations. Most of the distressed debt and rescue lending opportunities the firm sees are in Europe, where businesses are still de-leveraging after the 2008 financial crisis, he said.
“Europe is far from played out,” Weinstein said in an interview at the firm’s New York headquarters. “It’s been slow to develop.”
KKR is expanding its credit business as private-equity firms such as Blackstone Group LP (BX) are stepping into the lending gap left by European banks, which are disposing of assets to meet new Basel III capital rules. Blackstone’s GSO Capital Partners LP said in September that it raised a $5 billion fund to provide financing to distressed businesses in the U.S. and Europe.
KKR is expected to announce the final closing of the fund as soon as today.
Weinstein, along with Nathaniel Zilkha, the co-head of special situations based in London, oversee a team of 15 globally. The group is part of KKR Asset Management, the firm’s credit unit that primarily invests in high-yield corporate debt and has about $20.9 billion of assets under management.
The KKR Special Situations Fund, which began raising money in 2012, has invested about 30 percent of its committed capital.
In Europe, the fund bought 51 percent of Winoa Group’s senior loans to gain control of the French steel abrasives company’s equity, Zilkha said. The fund also provided about 328 million euros ($445 million) of rescue financing for the insulation division of Uralita SA (URA), a Spanish building-materials maker, he said.
“Since the beginning of 2011, we realized that our creditors -- mainly Spanish banks and U.S. bond holders -- were not going to extend our loans for too long due to the lack of liquidity,” Javier Serratosa Luján, Uralita’s chairman and chief executive officer, said in an e-mailed statement.
The Madrid-based company turned to KKR as it was the only fund that would provide long-term financing without any dilution to its equity, he said. The firm is present for Uralita’s monthly executive meetings and has shared “valuable contacts” from companies in its portfolio, Luján wrote in the statement.
KKR Special Situations Fund LP is investing on behalf of a a pool of investors, including pension plans, insurance companies and sovereign wealth funds, said Zilkha.
The special situations group, which manages about $4 billion, previously invested for individual customized accounts, generating gross returns of 20 percent since it was established in 2010 through the end of September, according to Zilkha, who also runs the firm’s credit unit.
That compares with an annualized total return of 10.3 percent for junk bonds over the similar period, according to the Bank of America Merrill Lynch U.S. High Yield index. Junk loans had an annualized gain of 6.3 percent, data from the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index show.
High-yield loans and bonds have below investment-grade ratings of less than Baa3 at Moody’s Investors Service and below BBB- at Standard & Poor’s.
The new fund has a similar target for returns, according to Zilkha and Weinstein, and a flexible mandate to invest in below-investment grade loans and bonds, as well as equity.
KKR’s debt business is poised to expand further with the acquisition of Avoca Capital, a European credit-investment manager with about $8 billion of assets. The firm said in October that the deal is expected to be completed in the first quarter of this year.
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