Bloomberg News

Prudential Capital Said to Seek $1 Billion for Mezzanine Fund

February 02, 2012

Feb. 1 (Bloomberg) -- Prudential Capital Group, an investment unit of Prudential Financial Services Inc., is seeking $1 billion for its fourth mezzanine debt fund, according to two people familiar with the matter.

Prudential Capital Partners IV LP will make midmarket mezzanine investments primarily in North American companies, said the people, who asked not to be identified because the information is private. The fund will target firms with at least $5 million of earnings before interest, taxes, depreciation and amortization, the people said.

Mezzanine, the layer of funding between common equity and bank loans, tends to yield more than comparable securities because it ranks behind other obligations in the event of default. KKR & Co., the private-equity firm that raised more than $1 billion for a mezzanine fund in September, said in a Dec. 15 note to clients that the debt was yielding about 12 percent even as companies have reduced leverage in the wake of the financial crisis.

John Chartier, a spokesman for Newark, New Jersey-based Prudential Financial, said he couldn’t comment on fundraising.

Prudential Capital’s previous mezzanine fund, which completed fundraising in 2009, collected $965 million, according to the firm’s website. It is generating a 1.2 times multiple of the acquisition cost and 18 percent internal rate of return, the people said.

As of Sept. 30, the firm’s three funds had made 126 investments in U.S. and Canadian companies with revenues ranging from $20 million to $500 million, according to its website. Investments include Boca Raton, Florida-based Patriot Rail Corp., which operates freight railroads; Fabrico Inc., a sheetmetal products manufacturer in Oxford, Massachusetts; and VLS Recovery Services LLC, a Hockley, Texas-based company that cleans railroad cars.

Prudential Capital managed $60 billion in mezzanine, private-equity, investment-grade and below-investment-grade private debt as of Sept. 30, the website said.

--Editors: Steven Crabill, Josh Friedman

To contact the reporter on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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