Kirtland Capital Partners considers move into sub debt; Sun Capital M&A focus on reform, add-ons

By Cristal Cody

Tupelo, Miss., Dec. 8 - Kirtland Capital Partners is considering moving capital into subordinated debt to take advantage of a gap left by the contraction of senior lending.

Meanwhile Sun Capital Partners Inc. expects most deals in 2009 will be for restructuring or add-on acquisitions to enhance a particular company, the firms' executives said Monday.

"We have considered in the transactions we've looked at in the last 90 days of putting some of our capital in the form of sub debt, but we haven't done that yet," Thomas Littman, managing partner at Kirtland, said during a conference on managing mergers and acquisitions held by the Turnaround Management Association.

Cleveland-based Kirtland Capital Partners invests in lower and middle markets in niche manufacturing, distribution and business service companies.

Littman said the market now shows little interest for cyclical companies.

"If we bring a company that is cyclical to our cash flow lenders, most of them are turning it down out of hand," he said. "For those that aren't cyclical, the amount of debt that is available is two to three times less.

"There is more sub debt and more interest from firms like ours in sub debt as we're trying to fill the hole and the appetite left from the senior lenders."

Michael Fieldstone, a principal of Boca Raton, Fla.-based Sun Capital, also said at the conference that a seller's market is not on the horizon.

Sun Capital is a private investment firm that holds 80 companies in its portfolio and about $10 billion of capital under investment.

"The M&A opportunity is going to be more in terms of restructuring and reducing the debt level or changing the terms," Fieldstone said. "I don't see it changing in 2009 that much in terms of not being a good time to sell a company."

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