Private equity firm Levine Leichtman Capital Partners is reportedly setting up a distressed debt fund. The firm is seeking to raise between $300-400 million and has already raised $150 million, according to a source familiar with the firm's plans. John Klinge, managing director at Levine, is said to be the point person heading up the fund, which will be based in Beverly Hills. Klinge referred calls to Stephen Hogan, principal at Levine. Hogan did not return calls.
Levine manages more than $1.1 billion of institutional investment capital through private equity partnerships. It invests in a range of sectors, including manufacturing, healthcare and consumer products. It already invests in distressed debt through an existing distressed debt fund, Levine Leichtman Capital Partners Deep Value Fund.
Levine's interest in the distressed debt market is indicative of a trend that has seen an increasing number of private equity firms investing in distressed credits. Scott Victor, managing director at SSG Capital Advisors, predicted more private equity firms will invest in distressed debt next year as they continue to compete with hedge funds, which are following more of a private equity business model by taking long-term equity positions in troubled companies. "The lines of demarcation have blurred between private equity firms and hedge funds," said Victor. "You'll continue to see hedge funds and private equity invest in distressed debt by taking blocking positions for ultimate controls."
One reason firms are seeking to take ownership positions in distressed companies is the higher returns they can make as compared to solely trading in the debt, said Victor.