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HHI Pays Out More Than $300 Mln in Distributions to KPS and other investors

How strong are the leveraged loan markets?

In the past year, KPS Capital Partners and other investors received more than $300 million in cash distributions from portfolio company HHI Group Holdings. The latest payout came today when the PE firm announced HHI had completed a $425 million recap. The debt package included a $100 million credit facility and $325 million term loan. HHI used the proceeds to fund a $100 million cash payout to stockholders, to refinance debt and to fund its continued growth.

Another recap came last October when HHI paid a $50 million distribution to shareholders. And yet another came a year ago, in March 2010, when HHI completed a $300 million recap. The deal funded a $150 million cash payout to shareholders.

Royal Oak, Mich.-based HHI makes engineered components, engine timing systems and unit bearings for the automotive industry. The company has over 2,700 employees and operates 14 plants in Arkansas, Illinois, Indiana, Michigan and Ohio.

KPS is a middle market PE firm that invests in restructurings, turnarounds and other special situations. The New York firm targets companies in manufacturing, transportation and service industries.

The strength of the leveraged market has helped fund dividends to PE firms such as Thoma Bravo (Flexera and Entrust), KKR and Bain (HCA) and Thomas H. Lee, Carlyle and Bain again (Dunkin’ Brands).

In 2005, KPS acquired Jernberg Industries and Iron Mountain Industries out of Chapter 11 bankruptcy to form HHI (this stands for Hephaestus Holdings), according to a statement from that time. KPS invested $23 million equity. HHI received another $8 million in interim financing from KPS to buy new manufacturing equipment. KPS owns a majority. Minority investors include MC Capital (a Mitsubishi subsidiary) and HHI management.

KPS’s investment in HHI came from both its second fund, a $404 million pool and its third fund, which raised $1.2 billion in 2007. Fund III, in 2009, was “upsized” to $2 billion. KPS is now investing from the third fund.