July 28, 2011 / 4:40 PM / 8 years ago

Buyouts Magazine-Blackstone targets $3B-3.75B for mezzanine fund

* Earmarked mainly for sponsor deals

* 20-30 transactions planned

* Prior fund far exceeded target

By Steve Bills

NEW YORK, July 28 (Buyouts Magazine) - The Blackstone Group LP (BX.N), best known for its buyout business, plans to raise $3 billion to $3.75 billion for mezzanine and related debt investments.

The GSO Capital Opportunities Fund II LP, managed by the GSO Capital Partners unit, is to be earmarked for mezzanine debt, secured debt and high-yield debt, according to the New Jersey Division of Investment, which made a $150 million commitment to the fund.

New Jersey committed $100 million to the first GSO Capital Opportunities Fund, which closed at $2 billion in 2008, far beyond its original $750 million target. As of March 31, Fund I has returned New Jersey a 1.40x multiple of invested capital and a net IRR of 16 percent. GSO Capital has closed on $420 million in commitments for Fund II, according to a regulatory filing in May.

For the new fund, GSO Capital expects to make 20 to 30 investments in the United States and Europe, with private equity sponsors involved in the majority of its investments. The firm plans to charge a 1.5 percent management fee during its five-year investment period and 1.25 percent afterward on the aggregate invested capital, including leverage. The management fee would be offset 100 percent by transaction fees and other fees.

The fund manager is to receive a 20 percent share of profits, or carried interest, after investors have seen the return of 75 percent of their capital contributions. After that, the GP will catch up by receiving 80 percent of distributions until the GP has achieved the 20 percent carry rate, according to the New Jersey documents.

GSO Capital was formed as a hedge fund in 2004 by Bennett Goodman, the former high-yield debt chief at Credit Suisse, and colleagues Albert Smith and Douglas Ostrover. The trio launched their investment firm with a $1.5 billion fund that closed in July 2005. Blackstone acquired GSO Capital for $930 million in March 2008.

GSO Capital has 184 employees in New York, London and Houston. The firm did not respond to a request for comment. (Buyouts Magazine is a Thomson Reuters publication. Editor: david.toll@thomsonreuters.com. www.buyoutsnews.com)

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