GSC closes Europe’s largest mezzanine fund

GSC Partners, the independent private capital investor, has held a final closing for GSC European Mezzanine Fund LP. At E1.065bn, it is the largest dedicated mezzanine fund raised thus far in Europe.

According to Christine Vanden Beukel, a London-based managing director of the firm, GSC closed on E765m of committed equity capital in October 2001, and has now signed an additional E300m credit facility to leverage the fund. Lehman Brothers acted as mandated lead arranger for the debt, with Dresdner Kleinwort Wasserstein as lead arranger. Bank of Ireland and Bank of Scotland also participated.

The bulk of the equity capital has been committed by US investors, with additional commitments coming from Europe, Asia and Latin America.

The fund has a deliberately broad mandate to provide subordinated debt and preferred equity to a wide range of mezzanine transactions, said Vanden Beukel: “We can offer a very broad range of subordinated debt products, which gives us the kind of flexibility that is necessary when it comes to a fund this size. ”

To further enhance the flexibility of its investment approach, GSC opted for a relatively low level of gearing for the fund. “It is relatively underlevered, which, for example, gives us the advantage of investing in different currencies. We can do US dollars, Euros or Sterling. One-for-one leverage would have been possible, but then you’ve got to change your investment approach.”

GSC is looking to invest up to E150m per deal, Vanden Beukel said, adding that the market was becoming increasingly confident that even larger mezzanine transactions are likely to take place going forward. “There is a lot of talk about the possibility of E300-400m of mezzanine capital invested in a single transaction, but we do not expect to be doing a deal that size in the near term.”

The fund has already invested E250m in buyouts including Morgan Grenfell Private Equity’s buyout of UK betting house Coral, Hicks Muse’s investment in Eubisco and Findexa, the directories business acquired by Texas Pacific Group.  

GSC now manages over $5.5bn in capital. Set up in 1994, the firm also runs a number of private equity funds, which are largely focused on the US market. According to Vanden Beukel, there is only very limited scope for the firm’s private equity funds and its mezzanine product to co-invest, in large part because of their respective geographic orientation.    

GSC’s closing of the new fund comes at a time when interest in mezzanine capital remains strong, particularly in Europe. According to Initiative Europe, European mezzanine financing increased 10 per cent and reached E4.2bn in 2001, despite the overall slowdown in the buyout market

Among those looking to capitalise on this trend is Hutton Collins, the newly set up investment boutique which is currently preparing to raise E600m for a dedicated fund.