Intention to raise further equity capital

07 May 2008

ACP Mezzanine Limited (“ACP Mezzanine” or the “Company”: ACPM.LN), the closedended investment company focused on lending to European small and medium-sized enterprises (“SMEs”), is pleased to announce its intention to raise approximately €150 million via a secondary equity issue in order to support its strong pipeline of investment opportunities. In line with the Company’s stated objectives, all of the identified investment opportunities relate to non-investment grade financing of SME businesses, primarily within its core markets. Completion of these investments is expected to enhance significantly its prospective earnings and dividends. (note 1)

As at closing 2 May 2008, ACP Mezzanine’s pipeline of advanced stage investment / underwriting opportunities, which it intends to complete prior to 30 June 2008, amounted to circa €350 million in total volume of assets. Such opportunities reflect the excellent market conditions from both an origination and pricing standpoint currently in the markets in which ACP Mezzanine is an active participant. These opportunities, for which ACP Mezzanine expects on the whole to receive upfront underwriting fees, primarily include:

  • A joint funding opportunity with Conpair AG, a leading German corporate consultant for SME financial products. ACP Mezzanine and Conpair intend to close and fund a c. €250 million portfolio of approximately 80 German SME mezzanine loan assets, in conjunction with c. € 210 million of senior debt being put in place;
  • Providing €40 million in a committed funding line to Leasecom, a French leasing business and one of the origination platforms of ACP Mezzanine’s investment manager, ACP Capital Limited (“ACP Capital”: APL.LN). This line is expected to grow to €100 million over a year and, as it grows, a senior portion will be syndicated; and
  • A further c. €30 million of small loans (average size c. €5 million), spread across a range of industries and geographies, sourced either directly through ACP Capital or indirectly through ACP Capital’s network of origination platforms, including GCI Management AG (“GCI”).

In order to optimize these opportunities, ACP Mezzanine intends to utilize its existing committed leverage facilities which amount to €150 million, the abovementioned senior funding for the Conpair portfolio and a further uncommitted funding line, which is currently under advanced discussions. The uncommitted funding line is expected to have a margin of 225bps over 3-month Euribor on a 50% advance rate. This is consistent with senior debt pricing being put in place in the current market. Although the portfolio is currently only c. 40% leveraged, funding the above pipeline will increase leverage towards but not over the Company’s stated maximum limit of 70%.

ACP Mezzanine expects to earn a post-leverage return on equity in excess of 20% across the portfolio of identified opportunities. Together with its existing investments, ACP Mezzanine anticipates achieving, by the fourth quarter of 2008 and on a post-leverage basis, an annual dividend yield in excess of 15% based on a theoretical issue price of €0.80 per share for the intended capital raise.

It is intended that existing investors will receive an interim dividend in parallel to the capital raise.

The Company is in advanced discussions on a further pipeline of investment opportunities amounting to circa €1 billion that are projected to produce a further portfolio of €300 to €400 million which could close as early as fourth quarter of 2008. These potential transactions are in part derived from ACP Capital’s network of strategic debt and equity platforms and partners including Conpair, as well as from reverse enquiries initiated by several prominent European commercial banks seeking to develop joint ventures with ACP Mezzanine. The Company has therefore initiated discussions with these banks in order to develop potential joint origination work flows within its core markets, with such banks potentially providing senior debt funding lines as part of such joint ventures. These opportunities include banks in the United Kingdom.

After receiving and evaluating approaches from a series of institutions to lead the capital raise, ACP Capital, as investment manager to the Company, selected Liberum Capital given its commitment to provide research and other capabilities within this specialised area. ACP Capital has also entered into discussions with Liberum in regards to becoming the Company’s Nominated Adviser and joint broker, alongside potentially another firm.

Collins Stewart Europe Ltd has in parallel resigned as Nominated Adviser and Broker but will continue to provide these services until a replacement is found or until the expiration of its notice period.

Commenting on the forthcoming capital raise, Derek Vago, CEO of ACP Capital, commented: “Within two years of its launch, ACP Mezzanine has become one of the leading non-investment grade lenders to European SMEs. We are now better positioned than ever to move to the next level of growth and diversification. The strength of our origination network, which provides a sustainable flow of assets, combined with improved pricing conditions in our targeted markets, is expected to enable us to exceed in 2008, a year in advance, our original three year target of €550 million of assets under management and a dividend yield of 13% by the end of 2009 (as stated in the Company’s Admission Document). The proposed secondary equity issue will allow us to take better advantage of the exciting investment opportunities that currently exist”.

Note 1 (1) This statement should not be interpreted to mean the future earnings per share of the Company, following completion of the secondary offering, would necessarily match or exceed the historical earnings per share of the Company.

Enquiries:

Rob Bailhache & Nick Henderson, Financial Dynamics (Media Relations)
+44 (0) 207 269 7200

Sacha Macintosh, ACP Capital UK LLP
+44 (0) 844 800 4530

Chris Wells, Stewart Wallace, Collins Stewart (Nominated Advisor)
+44 (0) 207 523 8350

Simon Stilwell, Liberum Capital (Placing Agent)
+44 (0) 203 100 2000