Bunker Hill expects to launch Fund III in next few months

Bunker Hill Capital, which was in the news this week over its busted investment in Papa Gino’s/Angelo Grilled Sandwiches, expects to launch its next fund by the end of the year or early 2019, according to a person with knowledge of the firm.

The firm had hoped to launch its third fund into the market this fall, the source previously told Buyouts. Fund III will likely have the same $250 million target as Bunker Hill ’s prior two funds. 

The firm likely will have to answer potential investor questions about what happened with Papa Gino’s, a restaurant chain in New England the firm bought with its debut fund, sources said. On the other hand, Bunker Hill can boast about two strong exits over the past year, the sources said. 

Papa Gino’s filed for Chapter 11 protection from creditors on Nov. 5 and closed 92 restaurants, laying off about 1,100 workers, according to the company’s bankruptcy filing. Wynnchurch Capital bought into Papa Gino’s debt over the summer and took over control of the company from Bunker Hill, which had no say in the company’s bankruptcy filing, the person said.

Wynnchurch provided a debtor-in-possession loan to help the company fund itself through the reorganization process and also is bidding $20 million to buy most of Papa Gino’s assets plus assumption of certain liabilities. The Chicago firm intends to offer employment to most of the company’s employees, the filing said. 

Bunker Hill acquired Papa Gino’s in 2005 out of its first fund. The company was unable to sustain its debt load under pressure from increasing competition and shifting consumer preferences for delivery and away from restaurant dining, according to bankruptcy documents.

Papa Gino’s hired North Point Advisors in January 2017 to explore a sale, but all potential purchase offers were less than the amount of the company’s secured debt, documents said. 

“The [company has] a substantial debt load that … they have been unable to service and are in default under,” the filing said.

Bunker Hill set a target of $250 million for its debut fund in 2004 and its second fund in 2008. It’s not clear how much Fund I raised, but Fund II closed on $200 million in 2011, according to a statement from the firm.

Bunker Hill managed about $288 million as of Dec. 31, 2017, according to the firm’s Form ADV.

Robert Clark, Mark DeBlois, Jason Hurd and Brian Kinsman lead the firm as managing partners.

Bunker Hill has had two strong exits recently. It sold Rizing, a specialized IT consultant, to One Equity Partners for a return of just over 4.5x, Buyouts reported in January. Rizing was a Fund I investment. 

The firm also sold Nexus Brands, which makes furniture and equipment for the tattoo, pet grooming and spa/salon industries, for an 85 percent internal rate of return and a 3.5x multiple, according to a person familiar with the deal. It’s not clear who the buyer was.

Action Item: Read Bunker Hill’s Form ADV here: https://bit.ly/2QsKN9Q.