Mezz house ICG books first loss in 20 years

Despite making a loss of £67m, ICG Group is upbeat about market opportunities and foresees a mid-1990s-style recovery, with local players doing deals with local banks at ‘reasonable’ rates of leverage.

ICG Group, the listed European mezzanine investor, has made its first annual loss in its 20-year history, as the firm takes significant impairments on its weakest performing assets. It made a pre-tax loss of £67 million (€78 million; $11 million) due mostly to £266 million of gross provisions for portfolio companies.

The impairments reflect ICG’s expectation that, in the current economic climate, recovery rates for the weaker assets in the firm’s portfolio “may prove to be much lower than we have historically achieved”, chairman John Manser said in a statement.

ICG, which is listed on the London Stock Exchange, invests in buyout debt, predominantly providing mezzanine debt, a layer of finance which typically sits between the senior debt and equity in a capital structure.

The firm reassured investors that the majority of portfolio companies were performing well, with 87 percent of the portfolio comprising investments in “defensive” sectors.

ICG also pointed to the “enormous levels of volatility” in credit markets, the absence of liquidity in the banking sector and the “the rout of CDOs and credit hedge fund investors” as having left an opening for the mezzanine lender to “fill a vacuum and invest at attractive prices”. The firm currently has around €1.7 billion in dry powder.

The firm also told of an impending return to a “mid-1990s”-style recovery of the deal market, characterised by local mid-market transactions executed by local private equity sponsors and financed by local banks at a reasonable level of gearing.

Investors reacted favourably to this morning’s results. The share price jumped almost 32 percent to £5.67 at press time.