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Tennenbaum Raises ~$530M For Turnaround Fund; Founder Steps Back

With one of its founders stepping back in a reduced role, Tennenbaum Capital Partners LLC has taken in approximately $530 million for its latest credit opportunities fund, a source familiar with the firm confirmed to sister magazine Buyouts. That’s ostensibly well short of its original $1 billion target although the firm has in fact raised close to $1 billion over the last two years.

Tennenbaum Capital Partners joins a host of turnaround shops raising fresh capital to capitalize on a slowing economy amid signs of tightening credit markets. The latter development, if it takes hold, would provide fewer opportunities for overleveraged, underperforming companies to refinance their way out of trouble.

Based in Santa Monica, Calif. and employing some 35-40 investment professionals, Tennenbaum Capital Partners set out in early 2009 to raise $1 billion for Tennenbaum Opportunities Fund VI LLC. As with its predecessors, including the $1 billion vintage 2007 Fund V, the fund is earmarked to buy credits of U.S.-based mid-market companies, often with an eye toward acquiring distressed companies and turning them around. The hands-on firm invests up to $250 million at a time in an array of industries, including automotive, financial services and health care. It has occasionally held credit positions in large, well-known companies such as the parent of Delta Air Lines.

By mid-2009 Tennenbaum Capital Partners spotted another big opportunity—to provide debtor-in-possession financing to companies in bankruptcy. Traditional lenders in that market had retreated in the wake of the financial crisis, leaving a chance for new players to come in and generate high-teens returns between origination fees, coupon rates and exit fees. Within a few months the firm, after putting Fund VI on hiatus, had rounded up $454 million for DIP Opportunity Fund LLC.

The firm got back on track with Tennenbaum Opportunities Fund VI by early 2010. It more or less wrapped it up on Aug. 12 in the neighborhood of $530 million after the investment committee of New Hampshire Retirement System approved a $20 million commitment, subject to a legal review. Other investors include Arkansas Teacher Retirement System, Kaiser Group, San Bernardino County Employees’ Retirement Association, and Wyoming Retirement System. Greenhill & Co. served as placement agent on the fund.

Although still active in the firm, Michael Tennenbaum, 75, who helped found Tennenbaum Capital Partners in 1999, and its predecessor in 1996, is taking a reduced role on Fund VI, according to our source familiar with the firm. He will hold a non-voting seat on the investment committee. Co-founders and Managing Partners Howard Levkowitz and Mark Holdsworth, both in their mid-40s, are seen as two of the senior leaders of the firm, heavily involved in day-to-day operations. Other voting members of the investment committee on the new fund include Managing Partners David Hollander, Michael Leitner and Rajneesh Vig, according our source.

Since 1999 the firm, with some $5 billion under management, has invested about $9 billion in more than 170 portfolio companies.

David Toll is editor-in-charge of Buyouts Magazine. Follow him @davidmtoll. Follow @Buyouts.