Notes from Interview with Peter Nolan of Leonard Green

Yesterday I interviewed Peter Nolan, managing partner of Los Angeles-based PE firm Leonard Green & Partners, as part of Buyouts East in New York City. He was pretty candid — perhaps emboldened by his firm’s seeming lack of recent scandal or massive portfolio company collapses (amazing, really, given its heavy emphasis on retail). Some takeaways:

• There had been some trade reports that the firm was raising an annex its fourth fund ($1.85b, 2004), but what it’s technically done is to get a recycling provision. This still could present similar legal conflicts inherent in an annex or cross-fund investing – LPs who don’t participate could have their initial investments diluted – but it’s a bit easier for LPs to sign off on because it doesn’t require new capital commitments.

• Leonard Green is concentrating on PIPE deals (i.e., Whole Foods) and bank debt purchases right now. It just doesn’t believe that leveraged buyouts can work in this market, in large part because of seller expectations.

• Nolan doesn’t shy away from the “financial engineer” label. Remember, this is a firm without “operating partners.”

• It’s also a firm whose current leadership comes out of Drexel, so Nolan has some empathy for some of the folks at AIG (like the one who wrote the “I Quit” letter). At the very least, he said he didn’t want to pass judgment on anyone before all the facts are in. “I’d make a lousy Congressman.”

• Leonard Green’s fifth fund ($5.3b, 2007) is 25% invested, and was marked down 11% in 2008. Its fourth fund is almost entirely invested – save for the new recycling option – and was written down 17.3% in 2008.

• Through the end of 2008, the Fund IV IRR was 1.4 percent. Fund III was 28.1%, Fund II was 19% and Fund I was 45.5 percent.

• The firm has written a pair of restaurant chains down to zero: Claim Jumper and Captain D’s/Del Taco.

• Was $5.3 billion too much to raise for Fund V? “No, it was too little.”