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Sankaty Raising Funds for DIP and Mid-Market Lending

Sankaty Advisors, the credit affiliate of Bain Capital, wants to help plug the gaping hole that is middle-market lending.

The Boston-based firm has launched two new funds in recent weeks, one designed to invest in middle-market debt, and another to capitalize on the bankruptcy bubble with DIP loans. According to sources familiar with the efforts, Sankaty is looking to raise $750 million for Sankaty Middle Market Opportunities Fund, and $400 million for Sankaty DIP Opportunities Fund.

Sankaty Middle Market Opportunities Fund (MMOF) will invest in middle-market mezzanine loans with some senior debt and equity. More specifically, it would target credit for new buyouts, rescue financings and secondary purchases of mezzanine debt. Sankaty expects to close on fundraising in November 2009, and then invest over the subsequent four years. Sankaty MMOF will charge a 1.25% fee on drawn capital with a 20% carry, including an 8% preferred return to LPs.

Sankaty’s middle-market group has generated a gross IRR of 21.5% through 34 exits to date, according to marketing materials.

Sankaty DIP Opportunities Fund will make debtor-in-possession loans to bankrupt entities. The $400 million fund has a two-year investment period with fees of 1.75% on commitments. The firm anticipates returns of between 12% and 15% for the entity.

A representative for Sankaty Advisors declined to comment.

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