Allegro closes Australia distress fund at $139m

Banks previously were willing to extend the expiry date on loans in order to give companies time to revitalize their business. But in the current lower growth environment, many have failed to improve EBITDA. The banks are reluctant to declare these companies insolvent because of the job losses - and reputational damage to their brands - that may result.

"They don't want to be seen to be quickly pulling the trigger to push businesses into receivership when they are struggling. We have an exclusive situation on the go where the bank is looking for a solution that is not insolvency," says Chester Moynihan, founding partner at Allegro. "The workout areas of banks talk to us about buying their debt or refinancing businesses. It's not just about capital but also our turnaround expertise."

Should that transaction go through, it would be the third investment from Allegro Fund II. The GP has already deployed A$25 million, joining a consortium that bought distressed Australian bus bodybuilding business Custom Bus, and acquiring Great Southern Rail, which was divested as a non-core asset by UK-based Serco.

Allegro focuses on mid-market businesses in Australia and New Zealand with revenues of more than A$50 million that require investment of A$10-50 million. Equity checks are likely to include a portion of co-investment.

Indeed, the strong appetite for co-investment among LPs coming in at the first close led to the hard cap being set at A$180 million. The GP ended up with sufficient demand from investors to exceed the original target of A$200 million but decided against seeking to increase the hard cap.

There are eight LPs in total, with 40% of the capital coming from offshore investors such as fund-of-funds, family offices and a major New Zealand sovereign institution. The onshore LPs include two of Australia's largest superannuation funds, each of which has in excess of A$40 billion in assets.

Allegro was set up in 2004 and assumed management of its first fund in 2008 as a replacement GP. This was the A$300 million ABN AMRO Capital Australia Fund II, which fully committed but every single 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%.

The firm has also been operating on a deal-by-deal basis, picking up a portfolio of distressed loans from Bank of Scotland International (BOSI) in partnership with KKR's special situations division and also being brought by creditors as a replacement sponsor for I-Med, Australia's largest private diagnostic imaging network. The business was bought by EQT Partners last year.

Moynihan also expects to see more transactions of this nature. "We think there will be situations in which hedge funds have bought credit at a discount and will look to restructure. We may be in the frame to come in as a partner and take control of the asset," he said.

Park Hill served as placement agent for Allegro Fund II.

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