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HRJ Capital Shops Stakes With Help From Probitas

What happens when even your creditor doesn’t want your assets? Troubled fund-of-funds manager HRJ Capital is in the process of finding out.

Back in December, it was revealed that HRJ was unable to repay a $68.9 million warehouse loan from Silicon Valley Bank, which has essentially been used to “fund” certain outgoing LP commitments. SVB suggested in an 8-K filing that it may assume control of HRJ, which had used both itself and its revenue streams as collateral for the loan.

Four months later, however, peHUB has learned that SVB seems even less likely to pull the trigger.

HRJ Capital has tried shopping stakes of its loan-related funds-of-funds on the secondary market, offering the funded pieces at cost and the rest for free. Apparently it didn’t find any takers, because the firm has since hired secondary intermediary Probitas Partners to help unload the assets on the secondary market, sources say.

If Probitas is successful, HRJ would use the proceeds to pay back the SVB loan. Under this scenario, HRJ presumably would remain an ongoing concern, managing funds not related to the loan. It may even manage to raise additional funds in the future, although the “pre-commitment” strategy is certainly a goner.

If Probitas fails, however, then the ball is back in SVB’s court. The bank wouldn’t mind managing the funded pieces, as it would receive related fees and carried interest (which could help retire the debt). But sources say that it doesn’t want the unfunded pieces. In other words, SVB really just wants its money back (with interest).

Probitas declined to comment, while HRJ did not return peHUB’s calls.

HRJ was formed in 1999 by former San Francisco 49ers stars Harris Barton and Ronnie Lott, with Joe Montana joining the following year. It was originally called Champion Ventures, and invested professional athletes’ money in venture capital funds like Accel Partners, Benchmark Capital, Kleiner Perkins Caufield & Byers, Mayfield Fund, MDV, Sequoia Capital, Summit Partners, Redpoint Ventures and Technology Crossover Ventures. Buyout funds include Apollo Management, Bain Capital, Blackstone Group, J.W. Childs Associates, KKR, Perseus Capital and TPG. Montana left back in 2006, by which point the since-rechristened HRJ Capital had broadened both its investor base and investment strategy. At around the same time, it hired Duran Curis (ex-LGT Capital) to run its buyout practice.

HRJ Capital Drops the Ball
Consensus: HRJ Was the First and Last FoF To Go Down