MatlinPatterson raises new $5 billion fund--source

By Dane Hamilton

NEW YORK, June 26 (Reuters) - "Vulture" firm MatlinPatterson LP is set to close on a new private equity fund of about $5 billion to buy distressed companies, making it one of the largest such funds, a source close to the matter said on Tuesday.

MatlinPatterson, founded by veteran distressed debt specialists David Matlin, Mark Patterson and Lap Chan, originally sought to raise some $3.5 billion for the firm's third fund.

But demand for the fund exceeded supply and it was oversubscribed by $1.5 billion, the source said, reflecting some experts' views there will be many more opportunities to invest profitably in debt-strapped companies over the next few years.

MatlinPatterson seeks to buy controlling stakes in companies in financial straits on a global basis, often by buying publicly traded debt and converting it to equity stakes, either in or out of bankruptcy court.

The firm disclosed on Tuesday that it agreed to sell one of its longest-held investments, chemical maker Huntsman Corp. (HUN.N: Quote, Profile, Research, Stock Buzz), to Basell BASL.UL, which is owned by privately held U.S. industrial group Access Industries. MatlinPatterson and the founding Huntsman family held 57 percent of Huntsman common stock.

The firm is also considering a major investment into Italian airline Alitalia (AZPIa.MI: Quote, Profile, Research, Stock Buzz).

MatlinPatterson declined to comment.

The fund-raising comes at a time when many experts in the restructuring advisory business -- lawyers, bankers and consultants -- forecast a rise in the number of corporate bankruptcies. This would provide more opportunities to firms such as MatlinPatterson, W.L. Ross & Co., Cerberus Capital Management and others, commonly know as "vulture" firms because they look to invest in companies facing serious problems.