Sankaty targets $3.5 billion for distressed fund

The credit manager is preparing for the next default cycle.

Bain Capital’s credit arm, Sankaty Advisors, is seeking $3.5 billion for a new global credit fund, a source familiar with the situation said.

The Boston-headquartered manager is preparing for a new wave of distressed opportunities. A launch letter for Sankaty Credit Opportunities VI was issued by Sankaty to limited partners last week. “It has been six years since the last default cycle and default cycles typically follow peaks in new issuance by 12-24 months,” Sankaty explained in the letter, first reported on by Bloomberg.

Sankaty envisages several industries experiencing a downturn including energy, shipping, media, metals and mining. It also sees opportunity in banks having to shrink their balance sheets in light of regulation, such as in Europe, where banks are expected to sell more than $1 trillion, Sankaty said in the letter.

The news of the fundraising follows similar strategies launched in recent months by other managers such as Oaktree Capital Management and Apollo Global Management, amid increased volatility in global markets.

Sankaty’s employees will put $125 million into Sankaty Credit Opportunities VI, Bloomberg reported. LPs that committed to Sankaty’s previous strategy Credit Opportunities V include New Mexico State Investment Council, Pennsylvania Public School Employees’ Retirement System, University of California Regents Endowment Fund, University of Michigan and Allstate Investments, according to PDI Research and Analytics.

A spokesman for Sankaty at Stanton Public Relations & Marketing declined to comment.

Sankaty bought a number of distressed loan books last year, the biggest of which to date by the firm was a $1.3 billion loan book from JP Morgan in July. It was comprised of mezzanine loans in North America and Europe, as well as loans and related special situations investments in Australia and Asia.

The firm has also been fundraising for a direct lending fund which will invest exclusively in the senior secured debt of mid-market companies globally and is targeting $700 million to $1 billion, as previously reported by PDI.

Sankaty Advisors has $25 billion in assets under management, according to its website.