Terra Firma Fund II fully committed

Terra Firma Capital Partners, the private equity group founded and run by Guy Hands, agreed yesterday to inject $500 million of equity into the $2.5 billion purchase of ASAS Aviation Holdings, Morgan Stanley’s aircraft leasing operation.

Parts of the $500m equity strip will be made available for co-investment to limited partners in Hands’s €2.1 billion Terra Firma Capital Partners II (TFCP II) fund, according to a source familiar with the group’s plans. However, ASAS is the final asset to be added to TFCP II’s portfolio, as the fund is now fully committed bar a small amount of capital set aside for follow-on investment in exiting portfolio companies.

TFCP II closed in February 2004.

Having fully deployed the fund, Hands has started a marketing campaign to form a new investment vehicle to fund new deals. The financier has hired the private equity fund placement groups of Citigroup and Merrill Lynch to assist with the project.

Terra Firma has published a private placement memorandum that does not specify the amount of capital Hands is seeking for Fund III. €3 billion is thought to be the minimum that a successful effort should bring in. Hands and his team have pledged to invest €100 million of their money in the new fund.    
 
To avoid being sidelined in the ongoing race for European buyouts for too long, Hands will be keen to achieve a closing on the new fund quickly. Given the current appetite among institutional investors for large European LBO vehicles managed by brand name general partners, amassing a large enough pool of capital within the coming months seems a manageable task.

First port of call for Terra Firma’s fundraisers will be the existing investors in the current fund. These include blue chip institutions such as Abu Dhabi Investment Authority, Canada Pension Plan Investment Board, the Government of Singapore, Adams Street Partners, TIAA-CREF, Northwestern Mutual, Citigroup and GE Structured Finance.  Several high net worth individuals are also in the fund, as are Hands himself and his Terra Firma colleagues.

The TFCP II portfolio is performing to plan, said the source. Thus far €327 million has been distributed to limited partners following a refinancing of the firm’s investment in UK refuse manager Waste Recycling Group.

Other TFCP II investments include cinema groups Odeon and UCI and Tank & Rast, the German motorway services business.