ICG optimistic despite 25% profit slump

A widening range of provisions for bad loans coupled with a low level of realisations hurt ICG’s full-year profit performance, but it was a record year for fundraising and AUM growth.

Mezzanine powerhouse Intermediate Capital Group this week reported a 25 percent fall in profits for the fiscal year ended in March 2013 as compared to the same period a year ago, attributing it in part to a low level of realisations and repayments stemming from macroeconomic factors beyond its control. Those factors include a “lack of available senior debt in the early part of the financial year” and the “continuing valuation gap between sellers and buyers”, according to the company’s results.

ICG’s adjusted profit before tax fell to £148.3 million ($224.6 million: €140 million) for the year ended March 31, from £198.8 million last year. Meanwhile, gross provisions increased 69 percent to £141.1 million, due to a higher-than-expected level of provisions in the first half, mainly arising from two large assets: waste management firm Biffa and Spanish travel agency Orizonia.

But a series of successful fundraisings, an investment portfolio that remains “broadly resilient” to economic pressures and record growth in AUM (up 13 percent to £12.9 billion for the year) have positioned the firm well for future growth, it said.

“The momentum for mezzanine fundraising has been strong across all our funds,” ICG chief executive Christophe Evain said in a statement. The firm closed its flagship mezzanine fund, ‘ICG Europe Fund 5’, in December on its hard-cap of €2.5 billion, which was “well above our target of €2 billion and the largest fund raised of its kind since 2007”. ICG anticipates a final close next week on its third ‘Longbow’ real estate debt fund on its £700 million hard-cap. And the firm is also poised to raise a new CLO, its first in five years, and has a US debt fund in development as well as plans to raise a successor to its ‘Asia Pacific Fund II’, which it said is currently 55 percent invested.

On the CLO front, Evian believes there are early signs that the European CLO market may be returning, “but it is unlikely to be sufficient to replace the run off of the older CLOs, as European regulators have imposed new capital rules which should only make it possible for the stronger fund managers to sponsor new vehicles,” he added.

Opportunity is also to be found in supplying debt to European mid-market companies, where a gap currently exists, as well as LBO and corporate debt, the firm said. “We continue to see disparity between the uncertain supply and the increasing demand for LBO debt, as well as general corporate debt. We expect this situation to persist for a long period of time providing our mezzanine and direct lending businesses with attractive investment opportunities.”