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Littlejohn Doubles Down On Distressed Debt With $500M Side Fund

Sensing a continuing demand by limited partners to invest in distress, Greenwich, Conn., buyout shop Littlejohn & Co. is raising a $500 million side fund for non-control deals.

The firm, a specialist in distress investing, has already held a first close of $16.1 million for the Littlejohn Opportunities Fund LP, a regulatory filing from January showed. The filing also identified the new fund as a hedge fund, indicating that the fund will focus on publicly-traded securities, probably predominantly debt instruments.

Richard Maybaum, a managing director, Littlejohn & Co., disclosed the fund target last week at the Buyouts New York conference. The launch of the new fund follows closely on the close of Littlejohn Fund IV LP, a $1.34 billion pool that held its final close in November. Fund IV closed above its $1.25 billion target and just below its $1.35 billion hard cap.

Fund IV set aside 20 percent of its capital for to make non-control investments in distressed companies, often by buying up debt from the target’s creditors, with the intent to gain control. In fact, in 2007, the firm had persuaded investors in its 2005-vintage Littlejohn Fund III LP to broaden the fund’s mandate beyond conventional buyouts, specifically to gain the flexibility to allocate capital to non-control distress deals.

Maybaum joined Littlejohn as a partner in 2005 to invest and manage the dedicated Distressed Securities Pool of Fund III. He is now investing and managing the dedicated Distressed Securities Pool of Fund IV and the new fund.

Angus C. Littlejohn Jr., chairman and CEO of the firm, told Buyouts in an interview last November that he believed many companies had over-leveraged themselves during the boom years of 2006 and 2007, taking on covenants that would require them to grow EBITDA at mid-teen compounded rates, far beyond realistic growth expectations, Littlejohn said at the time. “They are not going to be able to outgrow that debt. At some point, they are going to have to restructure that balance sheet.”

Steve Bills is a senior editor at Buyouts Magazine. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.