News & Analysis

Sun Capital earmarks $150m for Fund IV follow-on investments

The Florida-based turnaround firm, which has had a string of portfolio companies seek bankruptcy since last year, will use $150m from its $1.5bn Fund IV and its $6bn Fund V for growth investments in the fourth fund.

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Sun Capital Partners plans to use $150 million to re-invest in the portfolio companies of its $1.5 billion fourth fund. Half of the amount will come from the firm's most recent $6 billion fifth buyout fund.

The money will be used “to complete the investments of the 43 portfolio companies of Fund IV”, according to a person with knowledge of the situation.

Limited partner advisory boards for Funds IV and V approved the use of the money for growth and add-on investments. The capital is not targeted to any specific companies in Fund IV but will be a general pool of money.

At least one LP in Fund V, the $13 billion New Mexico Public Employees' Retirement Association, included information about Sun's earmarking of this $150 million as an agenda item for its investment committee meeting this month. It was not an “action” item and did not require a vote from the pension board, according to Robert Gish, director of investments. No member of the investment committee objected to the item, Gish said. New Mexico PERA is an LP in Sun Capital's fifth fund, with a $30 million commitment.

Sun Capital has had 10 portfolio companies go bankrupt since last year, including at least two from its fourth fund – Big 10 Tires and Fluid Routing Solutions. The firm has injected capital into Big 10 and Fluid Routing as bankruptcy financing to ensure control when they emerge from Chapter 11.

Other companies in the fourth fund include Boston Market, Hickory Farms, Limited Stores, Mark IV Industries, Marsh Supermarkets and Remco World Air Services, Real Mex Restaurants and True.

Mark IV Industries and Real Mex Restaurants are included on Moody's Investors Service “bottom rung” list of the 283 US-based companies at risk for default.

Several firms have been raising annex funds, or capital to be added on to existing funds. Gryphon Investors raised $100 million last year as a way to continue investing rather than raise a new fund, after the firm invested about 75 percent of Gryphon Partners III, which closed on $415 million in 2006. New York turnaround specialist MatlinPatterson closed an annex fund reportedly on $165 million to aid distressed portfolio companies from its 2003 distressed vehicle.