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Why Did Nelson Peltz’s Public Debt Fund Fail (And Will THL’s Do the Same)?

Trian Capital Corp., the investment fund run by Nelson Peltz, has dropped plans to raise a new corporate debt fund through a public offering worth $300 million, Bloomberg reported.The company filed to take the blind pool fund public in May.

According to an industry source, the plan did not fail because of the market’s lack of appetite for business development corporations (BDCs), despite comments from Trian Spokesperson Anne Tarbell to the contrary. Tarbell told Bloomberg: “While our highly experienced credit team was well received by investors, the reality is there is still no public market for new BDCs.”

A market source said the fund did not pan out because its strategy turned off investors. The firm’s long term strategy, according to the S-1, was to invest in “leveraged companies” in the form of senior and junior secured loans, subordinated loans, bonds, mezzanine loans and direct equity investments. Sounds well and good. But according to a source, the firm articulated its near-term strategy was to purchase discounted secondary loans, which wasn’t attractive to public market investors for a number of reasons.

For one, the strategy depends entirely on the market to produce a return. If things go sideways, secondary market debt holders have little control as to the restructuring plans.  Beyond that, buyers of secondary debt aren’t able to structure their deals and often don’t undergo the same levels of due diligence as BDCs. Tarbell did not respond immediately to a request for comment.

So is this bad news for the other BDC that’s in registration? Maybe not. Buyout firm THL Partners filed to raise the same amount–$300 million-for a blind pool called THL Credit. Its strategy is slightly different. The firm intends to originate new deals from non-sponsor-backed corporations, which could prove to have more traction with investors.

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