Avenue Capital Group is back in the market looking to take advantage of distressed investing opportunities in the North American energy market, which will focus mainly on corporate reorganisations.
The New York-based asset manager is seeking $1 billion for Avenue Energy Opportunities Fund II, according to documents from the Minnesota State Board of Investment.
The firm noted several factors made for potentially ripe investment conditions for Fund II, including recent lower-quality debt issuances, low prices in the power sector hurting power companies’ bottom lines and some $174 billion of leveraged credit in the energy market.
The portfolio will consist mainly of senior secured debt investments, though may turn toward junior debt if the credit markets warrant it. Half of the fund’s deals will be reorganisations, while the other half will be evenly split between market exits/refinancing and asset sales/liquidation, according to SBI documents. The firm expects its pool of capital to be active in corporate bankruptcies. SBI put $100 million into the fund.
Avenue and SBI both declined to comment.
For first time investors in the fund series, the vehicle carries a management fee of 1.5 percent on drawn but unreturned capital during the investment period, after which the fee would slide to 1.25 percent on aggregate unreturned capital. Fund I investors will be charged a management fee of 1 percent.
Avenue put a 20 percent incentive fee on the vehicle and will make a general partner commitment of at least 2.5 percent.
Fund II has a five-year life with a three-year investment period. The life has the option of two one-year extension periods. It also has an additional two one-year lengthening periods, should Avenue request those extensions and a majority of Fund II’s LPs support the move.
Avenue Energy Opportunities Fund I included $100 million from SBI, $200 million from the Pennsylvania Public School Employees’ Retirement System, $150 million from the Teacher Retirement System of Texas and $10 million from Santa Barbara County Employees’ Retirement System, according to PDI data.
Fund I has posted a net internal rate of return of 14.3 percent, SIB meeting materials showed. The fund looks to return a 20 percent gross IRR, according to PSERS documents. No target net IRR was specified.
Avenue is also currently raising its Avenue Asia Special Situations Fund V, for which it has set a $500 million target, according to PDI data. So far, the vehicle has raised $119.5 million. The firm, which manages $10.1 billion in assets as of 30 April, specialises in distressed debt investing and also has real estate and private equity investment strategies.