Allegro targets $188m for Australasia distress fund

In addition to serving as the replacement GP on the A$300 million ABN AMRO Capital Australia Fund II, the private equity firm has operated on a deal-by-deal basis since its inception in 2004. Chester Moynihan, managing director at Allegro, told AVCJ that a stand-alone fund would allow the team to act with greater speed and flexibility.

"One of the key things that has frustrated us operating in this is without a committed fund doing deals can be tricky," he explained. "The requirement is you do this next week, so the urgency is there. We have missed out on opportunities because people know we have to go back to LPs to raise capital."

Several of these LPs are investors in the ABN AMRO vehicle, now known as Allegro Private Equity Fund I, which Allegro took over in September 2008. The fund was fully committed but it had made investments at the peak of pre-global financial crisis boom period and every asset was in distress. Allegro spent two years recovering value from the portfolio and, based on the reset value, has generated an IRR of 25%.

These same investors - principally Australian superannuation funds - are expected to contribute around A$50 million to the new vehicle. Allegro hopes to raise half the capital from domestic institutions and half from overseas investors.

Moynihan describes the firm's approach as "turnaround and restructuring meets private equity," and in this sense it is comparable Helmsman Capital and Anchorage Capital Partners. The latter reached a final close of A$250 million on its second fund earlier this year.

Moynihan, who previously worked at Gresham Private Equity in Sydney and Schroder Ventures in London, founded Allegro with Adrian Loader, a turnaround and operational improvement specialist. They head a team of nine, with six investment professionals.

The firm's deal-by-deal activity includes the acquisition of portfolio of distressed loans from Bank of Scotland International (BOSI) in partnership with KKR's special situations division. The portfolio comprises 11 commercial loans to companies based in Australia and New Zealand with a face value in excess of A$300 million. They are currently being refinanced or restructured.

According to Moynihan, the deal came about because Allegro had been talking to KKR about other potential investments while simultaneously analyzing several of the portfolio companies in the BOSI package in expectation that the loans might be sold off. It was BOSI's first commercial debt sale in Australia, although another tranche has since been exited to Bain Capital credit affiliate Sankaty Advisors.

Allegro also sees deal flow arising from situations in which otherwise strong companies are struggling with heavy debt burdens and the original bank creditors have sold their liabilities to hedge funds. While Allegro doesn't trade debt, it is willing to go through debt to acquire equity, and creditors call the firm in as a replacement sponsor.

This was the case with I-Med, Australia's largest private diagnostic imaging network, which was previously owned by CVC Capital Partners. The debt had been bought up by approximately 30 hedge funds and, with one third of I-Med's doctors looking to leave the company, Allegro was brought in to stabilize the business.

Moynihan sees increased activity from hedge funds in this area - in combination with Australia's strong director insolvency laws - as a key business driver. "Since 2009, hedge funds have softened the soil. They have got the major banks to sell their debt and we have been beneficiaries of that, by coming in and partnering with them."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Fundraising
• Australasia
• Credit/Special Situations
• Restructuring
• Distress
• Australia
• Fundraising
• Allegro Funds