BlueBay seeks €2.5bn to invest in companies with EBITDA of up to €100m

The fund will underwrite transactions of €30m-€300m and a hold size capability of €30m-€150m.

BlueBay Asset Management is back in market with another vintage of its flagship fund, shortly after it closed its Senior Loan Fund on €3.2 billion of investable capital, according to documents from the Vermont Pension Investment Committee.

The London-based investment firm is seeking €2.5 billion for its Direct Lending Fund III, which was formally launched in September. The vehicle is targeting a first close by the first quarter of this year and a final close in the fourth quarter or the first quarter of 2019. VPIC made a $70 million commitment to the fund in August.

The fund will lend to European borrowers with a total enterprise value of up to €2 billion, revenues of €500 million-€1 billion and EBITDA of €10 million-€100 million. The fund will have “Northern Europe bias” and make 25-40 investments, the documents showed. It will be able to underwrite loan sizes of €30 million-€300 million and a hold size capability of €30 million-€150 million.

With levered and unlevered sleeves, Fund III which will be a seven-year vehicle consisting of a four-year investment period and three-year harvest period. The life is subject to two one-year extensions.

With the vehicle, BlueBay will be allowed to recycle loan principal repayments during the investment period. It can invest in senior, unitranche and subordinated debt but will focus on senior loans, the documents show.

BlueBay is charging management fees of 1.25 percent for the unlevered sleeve and 1.5 percent for the levered sleeve. Both fees will be on invested capital, and the charge on the levered sleeve will not include leverage utilised. The carried interest is a 15 percent over a 5 percent compounding hurdle rate.

The target is slightly below the €2.8 billion raised for Fund II but well above the €955 million collected for Fund I. Limited partners that committed to Fund II included the Orange County Employees’ Retirement System ($75 million), New Hampshire Retirement System, (€45 million) and the Municipal Employees’ Retirement System of Louisiana ($40 million).

Fund II, which is currently deploying capital and has completed 21 investments, has posted a net 9 percent net internal rate of return and a 1.11x multiple on invested capital, as of 31 March. Fund I, which is fully deployed with 21 investments, has achieved an 8.25 percent net IRR and a 1.2 multiple on invested capital, also as of 31 March.

Statistics for Fund II include a net opening leverage figure of 5x and a net leverage of 4.7x, as of 31 March. The loan-to-value ratio for the fund was 54 percent, and some 98 percent of the transactions were senior debt. Fund I had an opening leverage of 4.5x, which had been reduced to 3.4x by 31 March.

In addition to its direct lending strategy, the firm also invests in high yield bonds, investment grade bonds and convertible bonds as well as broadly syndicated loans, mezzanine finance and distressed debt. BlueBay, which manages $59.6 billion, has offices in Stamford, Connecticut; Luxembourg; Munich; Tokyo; and Zurich.