Darby launches $248m central, eastern Europe mezz fund

Franklin Templeton Investments’ buyout arm has launched the largest mezzanine fund in central and eastern Europe.

Darby Overseas Investments, the private equity arm of Franklin Templeton Investments, has closed its mezzanine fund at €248 million ($340 million).

After the expected refinancing of a €65 million bridge loan, the final size of the fund is expected to exceed €300 million making it the largest source of mezzanine in central and eastern Europe. Around 60 percent of the fund is equity and the rest is debt. The fund provides mezzanine loans to countries in the region which have joined the European Union and those aiming for membership.

The fund has so far made five investments totaling €64 million. The most recent is €20 million investment in a leveraged buyout of DDSG Cargo Group, a Vienna-based river transportation company.

Robert Graffam, Darby’s senior managing director, Europe, said: “There are opportunities for mezzanine in central and eastern Europe because the disruption in the credit markets will not slow down the pace of investment in the region. While it will reduce the amount of liquidity in the market as an experienced investor, we’re not subject to investors or lenders redeeming their money and so borrowers will seek out mezzanine as an alternative source of capital.”
Graffam expects the fund to provide two thirds of its funds to non-sponsored deals, where another private equity sponsor is not involved and a third to larger leveraged buyouts in the region.

Darby has a private equity fund for the region but Graffam said this is “in wind down mode”. Although he said it is considering raising a fund in the future.

The fund’s largest competitor is UK company Mezzanine Management, which had its first close in March on €100 million for its planned second €200 million fund.

Darby is one of a small number of providers that supplies mezzanine to emerging market regions. It began in Latin America, and has since moved to Asia and more recently to central and eastern Europe.

The fund has also invested in Rigas Piensaimniekes, a major dairy products concern in Latvia, UNO, an industrial bakery in Turkey and Ceske Radiokomunikace, the dominant broadcast and alternative telecommunications services provider in the Czech Republic.

The company was founded in 1994 by Nicholas Brady, who served as US Secretary of the Treasury between 1988 and 1993. In 2003 it was bought by Franklin Resources which has $621.5 billion (€850 billion) in assets under management.