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Intermediate Capital Profit Jumps as Impairments Fall

Nov. 23 (Bloomberg) -- Intermediate Capital Group Plc, a London-based provider of loans for private equity firms, said fiscal first-half profit surged as impairments dropped.

Net income jumped to 67.5 million pounds ($107 million) in the six months through September from 1.7 million pounds in the year-earlier period, the company said in a statement today.

Intermediate invests in mezzanine finance, which gives lenders a stake in the company a loan was used to buy. Mezzanine loans are a blend of equity and debt, paying higher rates because they are the last form of debt to be repaid. The firm said it invested 128 million pounds in the six-month period and reaped 87 million pounds from selling stakes.

“The recovery in deal activity has gained pace in the past few months,” Chief Executive Officer Christophe Evain said. “Continuing high levels of realizations and lower impairment charges have benefitted the results of our investment company and the performance of our funds.”

The company said it doesn’t expect market conditions to change materially in the second half, although the economic environment “remains full of uncertainty.”

The shares slipped 21 pence, or 6.3 percent, to 314.9 pence as of 10:30 a.m. in London. The stock has climbed 15 percent this year, for a market value of about 1.2 billion pounds.

Mezzanine, High-Yield Funds

Intermediate plans to raise a 2 billion-euro ($2.7 billion) mezzanine fund next year, Evain said in by telephone today. The firm will also start to raise money from investors next year for its first pool investing in high-yield bonds.

Intermediate Capital is also looking to acquire more loans after buying a leveraged loan portfolio with a face value of 1.4 billion euros from Royal Bank of Scotland Group Plc in August.

“I don’t think RBS is isolated in wanting to de-lever their balance sheet,” Evain said. “A number of banks in the U.K. and the continental Europe will have the same objective.”

Average bid prices for actively traded, or so-called flow name, leverage loans in Europe reached a three-year high at 97.23 percent of face value in the first week of November, supported by fund inflows, according to Standard & Poor’s Leveraged Commentary & Data.

“The secondary market has rallied in loans, but the prices have mostly increased for flow names,” Evain said. “There is a valuation gap between flow names and the less liquid names, which means if you have the ability and infrastructure to understand local markets across Europe then you can still identify really good quality loans you can buy at good value.”

Ireland, Greece

Ireland’s decision to request emergency aid from the European Union and the International Monetary Fund failed to contain investors’ concerns about the European fiscal crisis. The extra yield investors demand to hold Portuguese 10-year debt rather than their equivalent German bunds jumped 13 basis points to 420 today. The spread for Spanish rose 9 basis points to 217.

Intermediate Capital has no investments in Greece, Portugal or Ireland, according to Finance Director Philip Keller.

“I would proceed with caution with anything to do with these countries,” he said.

To contact the reporter on this story: Patricia Kuo in London at pkuo2@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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