ICG Raises $3.3 Billion for European Mezzanine Loan Fund

Intermediate Capital Group Plc raised its largest-ever fund, a 2.5 billion-euro ($3.3 billion) pool of money to invest in European mezzanine loans.

The U.K. money manager has taken advantage of growing demand from institutional investors for debt from mid-sized companies as the region’s banks cut lending to such firms, Benoit Durteste, ICG’s London-based head of mezzanine, said in a telephone interview.

“The banks and fund-of-funds that were heavily invested in the space have retreated, with pension and sovereign wealth funds taking a bigger share,” Durteste said. “Investors are recognizing there is a structural lack of credit in Europe, particularly amongst mid-market companies that do not have access to public bond markets.”

The fund is the largest-ever raised in Europe focused on mezzanine loans, according to data from research firm Preqin Ltd. ICG targeted 2 billion euros and increased the fund’s size to its maximum, the London-based company said in a statement today. ICG has already invested 23 percent of the fund, which has a five-year investment period and can also purchase senior-ranking equity, it said.

Mezzanine loans are a type of debt used to fund leveraged buyouts and may give lenders a stake in a company. The debt pays more than bonds and costs roughly double the interest margin of senior loans because of its junior ranking.

European banks arranged $130 billion of high-yield loans in 2012, 27 percent less than the year before, according to data compiled by Bloomberg.

Investor Diversification

ICG’s investment company contributed about 500 million euros to the fund, with sovereign wealth investors providing 35 percent, pension funds 31 percent and insurance companies 10 percent, according to the statement.

ICG also raised 212 million pounds ($341 million) for ICG-Longbow Fund III, a new investment focusing on mezzanine debt, according to the statement. Another fund focusing on direct lending of senior-secured loans to European mid-market corporates is expected to close before the end of the financial year.

Assets under management increased 13 percent to 12.9 billion euros since the start of the financial year, according to the statement. ICG’s investment company received 40 million pounds of repayments in the quarter ending Dec. 31, raising the total for the year to 91 million pounds.

ICG was little changed at 340 pence at 9:47 a.m. in London. The stock has climbed 38 percent in the past year, giving the company a market value of 1.4 billion pounds.

Leveraged loans and high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

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