GSO marshals co-investing power in ‘Giant’ deal

GSO Capital Partners has rounded up a group of co-investors to capitalise on the dislocation in Europe, investing $430 million in cement business Giant Cement and its owner, Spanish cement producer Cementos Portland Valderrivas.

The troubled company, which is reportedly set to close three of its eight factories in Spain, will use the capital injection to refinance and pay down existing debt. In 2011, Cementos Portland recorded a loss of €337 million, due primarily to cement consumption in Spain falling 64 percent from its peak in 2007, according to a company statement.

Due to the size of the transaction, GSO decided to bring a group of co-investors into the deal, the majority of which are limited partners in GSO’s funds. The Blackstone Group’s credit affiliate will invest primarily from its “rescue” lending fund, GSO Capital Solutions Fund I, which collected more than $3.2 billion in 2010.

We expect Europe to be a happy hunting ground for cash-rich investors who have the skills, resources and patience to pan for gold in Europe's distressed loan portfolios and debt-riddled corporates. Andrew Traynor and Anthony Smyth

GSO is currently in market with its second rescue lending fund, which is reportedly targeting more than $4 billion. The second rescue fund will focus on European companies more than the first fund, which does not have much exposure to Europe, sources previously told Private Equity International.

GSO’s capital solutions team focuses on companies in need of liquidity or restructurings due to potential breaches of debt covenants, impending loan maturations, cyclical downturns or other funding needs. The group is led by Blackstone senior managing directors David Posnick, Jason New and Dwight Scott.

GSO is one of many private equity groups to focus on opportunities related to the ongoing economic chaos in Europe, as firms including Kohlberg Kravis Roberts, Apollo Global Management and Oaktree Capital Management have all been focusing on credit-related opportunities in the region.

“We expect Europe to be a happy hunting ground for cash-rich investors who have the skills, resources and patience to pan for gold in Europe's distressed loan portfolios and debt riddled corporates,” wrote Andrew Traynor and Anthony Smyth of law firm Walkers in a recent commentary for Private Equity International.

One of the reasons LPs have increasingly sought out co-investments in the past few years is for the increased exposure to direct investments. Co-investments can provide valuable insight into how a sponsor works with management and adds value to the companies in which it invests.

While funds offering co-investments have been popular among limited partners recently, many LPs only co-invest with general partners to which they’ve made primary commitments, and some require extensive vetting of co-investment opportunities offered by existing managers.

GSO’s other fund family called “Capital Opportunities” focuses on mezzanine investments. The group’s second mezzanine fund closed on $4 billion and had deployed $1.1 billion as of March.