Newport Global Advisors recently closed the restructuring of its distressed debt fund, Newport Global Opportunities Fund, with new lead investors Morgan Stanley, LGT Capital Partners and Neuberger Berman, Secondaries Investor has learned.
The deal took about five months to complete, according to two sources, and the assets being restructured were valued at between $400 million and $450 million, including some fresh capital for follow-on investments. Buyers did not use leverage at deal level.
The transaction, in which about two-thirds of existing limited partners sold their stakes in the fund, closed at the end of 2015 at a small discount, a third source said.
One attractive aspect of the transaction was that the remaining assets in the funds were of good quality and at reasonable valuations, said one source. The transaction included about eight portfolio companies in the distressed-for-control fund including US restaurant chain companies American Blue Ribbon Holdings and J Alexander’s Holdings, and resort and casino chain Eldorado Resorts, which were transferred to a newly-created fund. In distressed-for-control funds, investors purchase distressed debt with the goal of gaining control of the equity of the company.
Some small positions in publicly traded companies were not part of the transaction and remained in the existing fund. “LPs who cashed out still have a tiny residual,” a source said. Another source added that the plan is to wind down exposure to these assets in a timely manner.
Texas-based Newport Global Advisors, a hybrid private equity and hedge fund, was founded in 2005 by former partners of AIG Global Investment Group. The founders also had close ties to private equity giant Providence Equity Partners. Shortly after inception, it raised $500 million for its debut fund, Newport Global Opportunities Fund. The fund started experiencing problems during the global financial crisis.
In 2006, Newport Global’s two funds, Newport Global Opportunities Fund and Newport Global Credit Fund, each opened a prime brokerage account with Lehman Brothers, according to 2014 court filings. They also entered into an agreement in which Lehman Brothers agreed to make loans to the funds.
On 10 September 2008, as rumours grew that Lehman Brothers was nearing collapse, the firm asked Lehman Brothers to transfer all assets held in their prime brokerage accounts to Credit Suisse, which would replace Lehman as prime broker. According to court documents, Lehman booked the transfer on 12 September 2008, but the securities never were transferred.
When Lehman Brothers filed for Chapter 11 bankruptcy shortly thereafter, Newport’s assets were held in custody of Lehman and Newport began court proceedings to get them back. As Newport was caught in Lehman Brothers’ collapse and bankruptcy, it also impacted performance of its fund.
“It’s a pretty good outcome,” said one of the sources. “This was a fund that got hurt in the global downturn. LPs are getting out at a rather full price.”
Newport is currently run by chief executive Tim Janszen and senior managing directors Ryan Langdon and Roger May.
Neuberger Berman, Morgan Stanley and UBS, the advisor that worked on the restructuring, declined to comment. LGT and Newport did not return requests for comment.