The yield myth

14 May 2004 By Rob Cox Follow @rob1cox

Only 1 of 12 potential IPOs, collectively aiming to raise $6bn, has been launched. And it’s trading at a 15% discount to its launch price. These socalled business development companies have many problems. And with interest rates rising, their yield isn’t compelling any more.

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Gleacher Partners, the buyout arm of the mergers and acquisitions boutique founded by former Morgan Stanley executive Eric Gleacher, filed earlier this week to raise $500m for a publicly traded fund investing in the securities of leveraged buyouts.

Gleacher joined about ten other private equity and investment firms that have filed registration statements with the Securities and Exchange Commission to launch IPOs of business development companies (BDCs) . These are funds that must distribute 90% of their profits and can invest in a broad range of securities. Most of the planned IPOs from the private equity firms are targeting mezzanine and other forms of higheryielding debt securities. They are also able to invest about 30% of their funds into equity.

Those that have announced plans for BDC sales include Kohlberg Kravis & Roberts, Blackstone and Evercore Partners.

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The yield myth

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