Lehman raises $670m for ‘hung bridge’ fund

Lehman Brothers is following the example of Golman Sachs, KKR and others in launching a fund that will pick up deal-related debt at a discount.

Lehman Brothers has raised $670 million (€464 million) for a hung bridge fund that will invest in leveraged buyout-related debt. The fund intends to employ 3.5 times leverage, bringing its total available capital to $3 billion.

Lehman and its employees committed more than $130 million to the fund, which will primarily invest in first lien secured positions in leveraged buyouts in the US and Europe.

Michael Guarnieri, formerly Lehman’s head of credit research, Thomas Kramer, formerly co-head of leveraged finance and Timothy Van Kirk, formerly head of leveraged loans, will manage the new fund.

“The Lehman Brothers Loan Opportunity Fund enables the firm and our clients to capitalize on dislocations in credit markets and our deep knowledge in this space,” Lehman’s global head of private equity Michael Odrich said in a statement.

The fund will provide much needed liquidity for the vast amount of LBO-related debt still on the balance sheets of investment firms. Lehman itself had committed $29 billion in financing for its top 20 pending LBOs as of September, according to a Fitch Ratings report.

Goldman Sachs is also said to be raising a fund for investments in LBO debt. Several private equity firms have launched similar vehicles as well: Oaktree Investment Management and TPG are raising $3 billion and $1 billion, respectively, for hung bridge funds. According to BusinessWeek, an existing Kolhberg Kravis Roberts hedge fund is also raising $1 billion specifically for LBO debt.

In addition, a group of Wall Street firms, led by Citigroup, JP Morgan Chase and Bank of America, is said to be raising at least $80 billion for a rescue fund that will acquire mortgage assets in order to improve liquidity in the credit market.