Benefit Street Partners is in the market for $500 million for distressed debt investments through a fund that, with a single investment, has already netted 30 percent of its target.
The New York-based alternative investment firm secured a $150 million commitment for its Benefit Street Partners Special Situations (BSP SS) investment vehicle from the New Jersey Division of Investments (DoI) the State Investment Council’s 28 September meeting, according to PDI Research & Analytics.
BSP SS will invest in companies with capital structures of less than $1.5 billion, where “an opportunity exists given a lack of liquidity”, New Jersey DoI director Christopher McDonough wrote in a letter proposing the allocation. This market, rather than playing in larger businesses’ debt, provides “healthy premiums” because the securities are not as widely held.
Because of the large commitment and for being an early investor, the Garden State investment manager, responsible for seven pension funds, will receive discounted terms. These include a 1 percent management fee to be charged only on invested capital and a 13.75 percent incentive fee over a 6 percent hurdle rate, fund documents show. The standard rates for the fund, which will aim for a net internal rate of return of at least 15 percent, were not disclosed.
Representatives for Benefit Street and the DoI could not be reached for comment.
McDonough’s letter to the State Investment Council signaled a belief that a downturn in the credit cycle could be near. He cited elevated acquisition purchase price multiples, currently higher than those of 2007. As of now, multiples stand at 10.5 times a company’s EBITDA versus a level of 9.9 times EBITDA nine years ago. He also pointed out that 11 percent of the market trades at distressed levels, which he defines as credit spreads of greater than 10 percent.
Benefit Street is also in the market for its fourth debt fund, which has a $1.75 billion target, as Private Debt Investorexclusively reported in July. The investment firm planned to launch the venture in the fall, sources had told PDI.
As the debt investing side of Providence Equity Partners, a $45 billion private equity firm, Benefit Street itself has about $12 billion under management.
Editor's note: The headline story has been updated to reflect a commitment amount of $150 million rather than $130 million.