Avista Capital Crawling Toward Fund Close

Fourteen months ago, Avista Capital Partners held a first close on “around $1 billion” of capital commitments for its second buyout fund. Things don’t seem to have changed much in the interim, according to an SEC filing that shows just $1.08 billion banked.

We reported last fall that the firm was planning a final close in March, on between $2 billion and $3 billion. This was a bit more flexible than the firm’s original $3 billion target, and the recent filing suggests a $2.5 billion target.

So why the struggle for Avista? The firm’s first fund, a $1.5 billion pool, made a big, oversubscribed splash in its 2007 debut. As a spinout of DLJ Merchant Banking Partners, Avista even scored backing from Credit Suisse, something fellow DLJ spinoff Diamond Castle Partners did not.

Avista also had no problem spending its take, having deployed 90% of its capital in less than one year.

Unless I’m missing something, it appears Avista is suffering from one big black eye: Star-Tribune.

Avista lost all of its $105 million equity investment* in the newspaper publisher’s bankruptcy, a deal I characterized as both a failed investment thesis and a foolish capital structure.

How foolish, you ask? How’s about 18% equity, 5x leverage foolish? Avista paid around 7x to 8x cash flow, which looked like a deal when its competitors were trading at 10-13x, but today that’s about 2-3x too high. Since Avista’s fund was 90% deployed as of year-end 2007, the firm likely couldn’t have put more money into Star-Tribune even if it wanted to. Possibly related, AIG announced it would sell its interest in Avista, along with its interest in Sun Capital, on the secondary market.

Previously: Avista Holds First Close on Second Fund

Why Did Avista’s Newspaper Investment Fall Apart?

*A previous version of this story listed the entire deal value as the equity investment.