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The Sun’ll Come Out Tomorrow?

Sun Capital Partners held its mid-year meeting two weeks ago and it wasn’t all bad news.

The turnaround firm’s leaders Rodger Krouse and Marc Leder were even bold enough to open their presentation with what we hope is a nod to peHUB’s vigilant Sun Capital coverage:

“Reports of my death were greatly exaggerated.”

Maybe they’re just big Mark Twain fans. I’m not sure how much investors appreciated lightheartedness when so much value has been destroyed, but we’ll give them the benefit of the doubt. After all, Sun’s portfolios, which took severe writedowns at the end of last year, were actually written up in the first half of the year.

Sun Capital’s fifth fund, a $6 billion vehicle raised in 2007, was held at 60% of cost ($743 million) as of June 30, 2009. The fund’s value was written up by 8% from Q1 to Q2. Previous reports pitted the fund five writedown at 36% at the end of 2008, a time when many buyout firms suffered deep writedowns thanks to mark-to-market accounting.

Overall, Sun Capital’s portfolio was written up by 3% in the first half of the year, a person in attendance said. That number includes funds two through five and excludes Sun Capital Securities.

The firm hasn’t had a bankruptcy since May. PE-backed bankruptcies have declined in general in Q3, with just one taking place in September. Are things turning around for the turnaround firm?

Sun Capital’s leaders tried to put a positive spin on its numerous rounds of layoffs, saying its team almost tripled from 2005 to 2008, and that staffing changes were a result of strategy changes. It’s true that the firm has altered the strategy for Sun Capital Securities from equity investments to debt plays, and it’s true the firm closed its Asian deal efforts and changed leadership in its New York office. On the resignation side, “which received excessive press coverage,” Sun saw seven buyout professionals resign this year, with five leaving in 2008 and five in 2007. Sun Capital’s team almost tripled between 2005 and 2008, and “remains it’s largest in the history of the firm,” they assured investors. Good, because the firm’s fund size quadrupled in 2007.

That doesn’t mean Sun Capital is out of the storm. The firm did not provide any updates on whether it will lower the fund size for Sun Capital Partners V LP. The $6 billion fund received calls from investors to return some money to investors in August, based on the fact that it had only invested around a quarter of the fund. That fund is underwater (now slightly less so).

The firm’s largest investment, Kellwood, which last quarter secured a lifeline for itself by arranging a debt exchange that extended its maturities until 2014, remains held at zero.

Sun Capital’s leaders also confirmed to investors that it will not be taking carried interest on the money it funneled from fund five into fund four with shareholder permission.


More Details on Sun Capital’s Potential Fund Size Reduction

LPs Ask Sun Capital To Cut Fund Size

Staring at the Sun: A Look at the Equity Checks from Sun Cap’s Bankruptcies

Deals like Accuride Are the Future of Sun Capital Securities

Sun Capital Laying Off 23, But Why?

More Sun Capital Layoffs, More Questions