Bybrook Capital, one of London’s most successful distressed debt firms, has been bought out by a group controlled by Mediobanca, as the Italian lender seeks higher margins by expanding into alternative investments.
London-based Cairn Capital, acquired by Milan-based Mediobanca in 2015, said on Tuesday it would buy Bybrook for an undisclosed amount, adding $ 2.5 billion in assets under management. As a result of the deal, which is expected to be finalized by the end of 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 from investors in Bybrook, 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.
Over the past year, money was poured into many of these specialized funds 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 have limited the amount of cheap debt that troubled specialists can buy.
While stimulus measures could help businesses stay afloat in the short term, the prolonged impact of Covid-19 could hamper their return to profitability and put them under increased pressure to repay their rising debt levels, opening up opportunities for struggling investors. Last year Andrea Enria, Chairman of the Single Supervisory Board of the European Central Bank, valued that in a severe scenario there could be an additional € 1.4 billion in non-performing debt across Europe, more than during the 2008 crisis.
Global corporate debt issuance jumped to $ 5.4 billion last year, more than a fifth above pre-pandemic levels, according to data provider Refinitiv. In December, rating agency S&P Global 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. Following the closing of the transaction, 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 Alberto Nagel, Managing Director of Mediobanca.
Bybrook notably became a majority shareholder of Italian bank Monte dei Paschi di Siena in 2016, having bought back its bonds before a so-called debt-for-equity swap. The fund is also active in the short sale of bonds and stocks, having made a name for itself a few years later. bet vocally against a group of companies specializing in debt collection, 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.