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Bybrook Capital, one of London’s most successful distressed debt firms, has been shut down by a group controlled by Mediobanca, the Italian lender seeking to offer higher margins by expanding into alternative investments.
London-based Cairn Capital, bought by Milan-based Mediobanca in 2015, announced on Tuesday that it would acquire Bybrook for an undisclosed amount, adding $ 2.5 billion in assets under management. Following the deal, which is expected to expire in late June, the combined entity will manage a total of $ 8 billion in troubled public, private, credit and debt markets.
Mediobanca will remain the majority shareholder of the group, with a 64% stake, while the remaining 36% will be held by the other Cairn shareholders.
According to two people familiar with the terms of the deal, Cairn will buy the stake of Bybrook investors, including private equity giant Blackstone, which provided $ 150 million in seed capital to Bybrook when it was founded in 2014. Blackstone, who declined to comment, will now exit the investment. The other Bybrook shareholders will take a minority stake in Cairn.
Bybrook is an investment specialist in distressed debt, where hedge funds seek to profit by buying back distressed corporate loans and bonds.
The money was poured into many of these specialty funds last year in anticipation of a wave of opportunities arising from the economic fallout from the pandemic. However, widespread government and central bank support programs around the world limited the amount of cheap debt that struggling specialists could buy.
While stimulus could help businesses stay afloat in the short term, the protracted impact of Covid-19 could hamper their return to profitability and put them under increasing pressure to pay off their rising debt levels , thus opening up opportunities for investors in difficulty. Last year, Andrea Enria, chairman of the single supervisory board of the European Central Bank, estimated that in a severe scenario there could be an additional € 1.4 billion of bad loans in Europe, more than during the 2008 crisis.
Global corporate debt issuance surged to $ 5.4 billion last year, more than a fifth above pre-pandemic levels, according to data provider Refinitiv. In December, the S&P Global rating agency warned that 515 U.S. companies were at risk of going bankrupt or may need restructuring.
The Bybrook deal is part of Mediobanca’s wealth management expansion strategy. The Italian lender announced last year that it would target acquisitions as part of a push towards alternative asset management.
The acquisition of Bybrook by Mediobanca follows that of RAM Active Investments in 2017. After the transaction closes, Mediobanca will manage $ 10 billion in alternative assets. “We will broaden investor appeal, increase new capabilities and achieve positive synergies by positioning the combined entity in the higher margin segment,” said Mediobanca CEO Alberto Nagel.
Bybrook notably became a major shareholder in Italian bank Monte dei Paschi di Siena in 2016, after buying back its bonds before a so-called debt-for-stock swap. The fund is also active in the short sale of bonds and stocks, making a name for itself a few years ago after betting vocally against a group of specialist debt collection firms, such as Arrow Global in the UK.
“We are excited about the prospect of merging with an exceptional company that has a proven track record of delivering strong, differentiated absolute returns to institutional investors,” said Nicholas Chalmers, Managing Director of Cairn Capital.
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