Peltz's Trian Is Eying Debt Fund, Sources Say
Activist investor Nelson Peltz's firm is in talks with a group of debt investors at New York-based
Trimaran Advisors
over some manner of partnership, say executives who have spoken to the parties involved.
Peltz may invest in a fund run by Trimaran, which manages $1.5 billion in debt securities of highly leveraged companies, or bring some of its managers on board to his own Trian Fund Management, the sources say. Trimaran portfolio manager David Millison, like Peltz, is a former executive of Drexel Burnham Lambert, the storied junk bond underwriter that collapsed in 1990.
The combination would allow Peltz to take advantage of dislocations in the debt market, while Millison -- particularly if he joins Trian -- would be able to tap into Peltz's fundraising network, the sources say. Trian is an investor in
Wendy's International
(WEN) - Get Report
, the hamburger chain recently bought out by Peltz's
Triarc Companies
(TRY)
, franchisor of the Arby's fast food chain. Details of the discussions between Trimaran and Trian could not be learned.
Trimaran Managing Partner Dean Kehler, reached by phone, said he could not discuss the situation. Millison declined to comment and Peltz did not respond to calls or email messages.
Millison has been managing about four or five structured debt vehicles known as collateralized loan obligations (CLOs), which are pools of leveraged loan securities divided into pieces, known as tranches, representing varying levels of risk. Investors buy the tranches that best suit their tolerance for risk.
Though many structured debt vehicles of this type have performed poorly over the last year due to the credit crunch, Trimaran had been performing well, continuing to post annual returns on equity in the high teens to low twenties, according to a source with direct knowledge of the fund's returns. But CLOs may not be the only vehicle planned. According to Trimaran Advisors' Web site, "the firm expects to expand its product offering to invest in other asset classes through various credit hedge funds in the near future."
Funds that invest in troubled debt securities are all the rage at the moment among private equity investors and hedge funds. These investors are looking to take advantage of banks' eagerness to unload loans and bonds they underwrote to finance the leveraged buyout boom.
In a conference call with investors Wednesday, Bill Winters, co-head of
JPMorgan Chase's
(JPM) - Get Report
investment banking business, estimated banks still have $150 billion worth of buyout commitments they want to move off their balance sheets, having already sold $150 billion. Hiring a fund manager such as Millison would enable Peltz to buy into these loans, which are on sale at the moment due to oversupply and concerns over the economy.
Buyout firms such as
The Blackstone Group
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and
Apollo Management
have already been in the market buying these distressed loans from the banks. According to reports last month, banks including
Deutsche Bank
(DB) - Get Report
and
Citigroup
(C) - Get Report
were in discussions with those firms, among others, as they work to unload the debt.
Trimaran Advisors is one of two business lines that comprise Trimaran Capital Management. The other unit, Trimaran Fund Management, has managed middle market private equity funds for 20 years under three different names. Trimaran Capital Management's two managing partners, Kehler and Jay Bloom, like Millison, are former Drexel executives.
Bloom was more closely involved with the debt business than Kehler, says an executive familiar with the firm. Bloom also declined all comment, and it could not be learned whether they will join Millison, or what will happen to the private equity business.
Trimaran's latest private equity fund is fully invested, but the firm has not begun raising a new fund, says the executive familiar with Trimaran.