Glendon closes Fund II on $2.5 bln hard cap

  • Fund II in market for about six months
  • Has three-year activation period
  • Draws fees only on invested capital

Glendon Capital Management closed its second fund on its $2.5 billion hard cap for distressed and special-situation investments after about six months in market, according to people with knowledge of the process.

Glendon Opportunities Fund II, Santa Monica, California, officially hit the market in March and just closed, the people said. Park Hill Group was placement agent.

The firm will have three years to activate the pool based on market conditions. Once it’s activated, it will have a 10-year fund life with a traditional 2-and-20 fee structure, the people said.

Glendon will charge fees only on invested capital in Fund II. The pool also won’t pay the GP any carried interest until all capital is returned to LPs plus an 8 percent preferred return, an investment memo from New Jersey Division of Investment shows.

The delayed-draw period “offers the fund and its investors the ability to be patient and well-positioned to deploy capital at optimal points in the next credit cycle,” the memo said.

Fund II LPs include New Jersey State Investment Council, State of Wisconsin Investment Board, Florida State Board of Administration, AT&T, Makena Capital ManagementPathway Capital Management and the MacArthur and Rockefeller foundations.

The firm closed its debut fund in 2014 on about $1.1 billion. That fund was producing an 11 percent gross IRR as of Sept. 30, 2017, one of the people said.

Glendon invests in bank loans, corporate bonds, municipal debt, sovereign debt, asset-backed securities and equity securities related to debt restructurings and special situations, according to Glendon’s Form ADV.

Past investments include American International Group, Lear Corp, Prologis and C&J Energy Services.

Glendon was formed in 2013 by Barclays’s head of distressed debt and special situations, Matthew Barrett, and former Managing Directors Holly Kim, Brian Berman and Eitan Melamed. Another partner, Michael Keegan, joined in May 2016, according to Glendon’s Form ADV.

Barrett, Kim and Berman worked at Barclays from 2006 to 2013, according to regulatory filings by Glendon. Earlier, they had worked at Oaktree Capital Management. Melamed joined in 2007 from Goldman Sachs.

With a mandate to invest in distressed credit and special situations at Barclays, the team tapped $1.5 billion from the bank’s balance sheet. That figure was later increased to $2 billion.

By the time of the spinout in April 2013, Glendon agreed to wind down the Barclays assets, which totaled about $700 million as of May 2014, a source previously told Buyouts.

Overall, the team generated an 18.8 percent gross IRR from Jan. 1, 2007, to Sept. 30, 2014, one of the people said.

Action Item: Check out NJ’s investment memo on Glendon: http://bit.ly/2wD5t94

The sun sets over the 10 Freeway during a heat wave in Los Angeles on Sept. 27, 2016. Photo courtesy Reuters/Lucy Nicholson