Babson Capital Europe Ltd., a unit of Massachusetts Mutual Life Insurance Co., is raising its first distressed credit fund to lend to companies as banks in the region retreat.
The Babson Capital Global Distressed Credit Fund plans to raise $250 million by the end of September, according to Stuart Mathieson, a London-based managing director at Babson. It will seek to deliver net annual gains of about 15 percent and look to invest in debt of 20 to 30 companies, Mathieson said in a telephone interview in London.
European banks are under pressure to reduce their balance sheets by as much as $3.8 trillion through asset sales to meet tougher capital requirements, the Washington-based International Monetary Fund said in a report in April. There are more than $340 billion of leveraged buyout loans outstanding in Europe, according to Fitch Ratings.
“There are growing opportunities in the distressed debt market, particularly in Europe, as over-indebted companies struggle to refinance and with banks retreating under the new capital regulations,” Mathieson said. “We are targeting a small fund-raise because we don’t believe that the supply of distressed corporate loans from banks will be as big as people thought it would be.”
The fund will look to deploy about 80 percent of the capital initially in Europe.
Babson has been investing in distressed debt within other loan vehicles. Setting up a separate fund will help it build a track record for the management of the assets, Mathieson said.
The firm is one of the investors providing 75 million pounds ($114 million) of cash into U.K. waste management company Biffa group Ltd. for its debt restructuring.
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