PARIS May 16 French boutique investment bank
Rothschild said on Thursday that it had raised 235 million euros
($302.26 million) for a debt fund in a bid to capitalise on its
expertise in advising mid-market European companies.
The fund, to be formally launched this week by Rothschild's
merchant banking arm, is the latest in a series of investment
vehicles aiming to profit from European banks' withdrawal from
lending to many small- and medium-sized companies.
The Five Arrows Credit Solutions fund expects to double its
fundraising to over 400 million euros at some point after the
summer as institutional investors join the high net worth
individuals who have already invested, officials said.
"We have a target of 400 million euros on the cover of our
marketing material and are confident that we will achieve and
indeed exceed this in line with our initial expectations," said
Martin Hook, one of two mezzanine fund experts Rothschild hired
last year to manage the fund.
For Rothschild's merchant bank, which has some 3 billion
euros under management, the fund is the latest effort to build
its presence in the mezzanine lending space, which it has been
pursuing with its own funds over the past several years.
Mezzanine funds invest in the least safe side of a company's
debt spectrum in exchange for higher returns that appeal to
"The companies we invest in are pressed by a variety of
constraints, although they are very good ones and very
profitable," Marc-Olivier Laurent, senior managing director of
Rothschild's Merchant Bank said in a phone interview.
"Banks are retreating, private equity will not do more than
half the financing structure of a transaction and therefore
there is a big hole in between, which can only be dealt with by
flexible financing instruments."
The fund will differentiate itself from competitors by
targeting companies with an enterprise value of between 100 and
750 million euros, which unlike their larger counterparts do not
have the option of issuing high-yield bonds.
"This is a place where basically conventional banking
finance has almost disappeared, where the competition is mostly
country-specific and not pan-European funds," Laurent said. "And
we believe we have a specific competitive edge in that respect."
The fund has already been in talks with a number of
potential investment targets, although no deals have been closed
pending the formal launch this week, executives said.
Managing the fund will be Edouard Veber, a former mezzanine
fund specialist at JPMorgan Chase and Hook, who joined
Rothschild last year from a fund called Indigo Capital.
A focus for the fund will be 'unitranche' deals, a blend of
senior and mezzanine financing which is an alternative to a
syndicated leveraged loan, mainly for small- and medium-sized
"The profile of the companies we look for is extremely
cash-generative," Laurent said. "Those companies turn to that
kind of credit not because it's cheap but because it's very
Companies typically use such debt for transactions from
management buyouts alongside a private equity bidder to
acquisitions or other expansion plans, Rothschild officials
($1 = 0.7775 euros)
(Reporting By Christian Plumb; Editing by Helen