Intermediate Capital and Nomura Set Up Japanese Mezzanine Fund

Intermediate Capital Group Plc and Nomura Holdings Inc. agreed to set up a mezzanine debt fund in Japan, citing increased demand as the world’s third-largest economy recovers.

Intermediate Capital, a London-based provider of financing for private-equity firms, and Nomura will allocate 10 billion yen ($99.3 million) apiece to the fund, the Japanese bank said in a statement today.

Mezzanine financing is a hybrid of debt and equity financing that generally gives a lender the right to convert to an ownership or equity interest in the company if the loan isn’t paid back in time and in full. It’s typically subordinated to debt provided by senior lenders such as banks.

“As the market in Japan benefits from the current government’s economic initiatives, the demand for mezzanine is anticipated to rise,” Intermediate Capital said in a separate statement. “Offering mezzanine investment within a fund structure opens up new investment opportunities to institutional investors.”

Intermediate Capital also said the U.S. market for collateralized loan obligations has “seen significant volume” for new issuance. In Europe, the firm was able to issue a 400 million-euro ($537 million) CLO fund amid a “nascent return” in the market, it said.

CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and returns.

Intermediate Capital also reported first-half pretax profit rose to 155.3 million pounds ($250 million) from 39.6 million pounds in the same period a year earlier. The company’s assets under management shrank 6 percent to 12.1 billion euros.

Intermediate Capital shares fell 18.5 pence, or 4 percent, to 442.1 pence at 8:44 a.m. in London trading, cutting their gain this year to 40 percent. The shares were cut to hold from add today at Numis Securities, which said the earnings and funds under management missed its estimates.

-- Editors: Keith Campbell, Jon Menon