Atlas Holdings Raising Proper Buyout Fund

Atlas Holdings is in the market raising its first traditional buyout fund, two sources familiar with the situation said. The Greenwich, Conn.-based distressed investment firm had previously relied on investors to back deals on a one-by-one basis, typically investing large chunks of its own general partners’ capital. That structure is similar to that of its founders’ prior firm, Pegasus Capital. Atlas Holdings’ general partners intend to make an “abnormally large” capital contribution to the fund.

The firm retained the services of Capstone Partners to advise it in raising a traditional fund with a target of $300 million, the sources said. The reason behind the structure is the “size of the opportunity,” one source said. Atlas Holdings invests in lower middle market distressed companies through a distressed debt-for-control, or “loan-to-own” strategy. That method has picked up steam in recent months as buyout pros look to the bankruptcy courts as a source of deal flow. Many buyout firms have expressed interest in the technique but lack the understanding of debt investing necessary to execute. In one recent situation, buyout firm Irving Place Capital partnered with a firm with experience buying distressed debt, OakTree Capital, to purchase control of Chesapeake Corp. via its debt in a bankruptcy proceeding.

That technique has produced strong returns for Atlas Holdings, place it “at the high end of top decile returns” for some of its investors, a source said. The firm entered the market with its new fund in July and hopes to hold a first close by the end of this year or early next year on north of $100 million, a source said.

Atlas Holdings targets investments in the industrial, chemical, agribusiness and financial services industries. The company purchased the Trus Joint Commercial division of Weyerhaeuser in August for an undisclosed amount. In May the firm teamed up with Blue Wolf Capital Management to purchase the Pictou, Nova Scotia, pulp mill, and associated timberlands business, to from Neenah Paper Inc.