Strategic Value Partners holds first close on $1.5bn

Distressed fund, launched in February, is part of the firm’s capital solutions series, source says.

Strategic Value Partners, a Connecticut-based investment management firm, has reached its first close on a new fund, Strategic Value Capital Solutions II, a distressed asset fund focused on corporate debt in western Europe and North America, according to a source familiar with the matter.

The source, who referred to an investors’ letter, indicates that SVCS II has raised roughly $1.5 billion as of March 2, and is targeting $3.75 billion. The new fund has set as its objective a net return of 13-15 percent and a net multiple of 1.75x. It plans to employ a wide range of strategies: event-driven, deep value opportunities; private debt restructurings, special situations; mezzanine and structured equity; control and significant influence equity opportunities.

A spokesperson for SVP declined to comment on the matter of a new fund.

It would be the fifth vehicle in the SVP’s capital solutions series, though only the second commingled fund. The first two, and the fourth, were separately managed accounts.

The source said that one of the investors in SVCS II is the New Mexico State Investment Council which (according to a story in Pensions & Investments) has committed $150 million.

The SVP investors’ letter shared performance for the Capital Solutions funds, including an average 12.3 percent net IRR and an average 1.4x net return multiple across the four funds to date.

The separately managed accounts of 2013 and 2017 vintage, as well as the SVCS of 2020, are all within the top quartile of Cambridge Associates’ private credit rating, September 2022.

The letter specified, based on Cambridge Associates’ analytics, that the funds with vintages 2013 and 2017 earned a gross IRR of 15.9 and 15.5 percent, respectively, as of 31 December 2022.

Strategic Value Partners, founded in 2001, manages $16 billion of capital in both open and closed-end investment vehicles, according to its website.

In February, SVP posted on its website a market commentary regarding the loan markets. This commentary may be pertinent to SVS’ appeal to investors.

The commentary noted that credit quality has “deteriorated materially [over 2022] – 70% of the US leveraged loan index is now rated B or below, compared with 51% of the High Yield bond index”. This has meant that the number of restructurings has increased considerably, and that in turn, SVP says, has filled up its “pipeline of curated deals”.