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JZ Capital Partners announces a more ambitious liquidity plan

JZ Capital Partners has announced that its board has decided on a more ambitious liquidity plan. It says that it plans to raise approximately $400-500 million in liquidity by the end of the Company’s fiscal year ending February 2023. This plan is intended to enable JZCP to pay down a substantial amount of debt and return a substantial amount of capital to shareholders while also meeting the capital requirements of the portfolio in order to achieve NAV growth.

Background to the liquidity plan

On 8 May 2019, JZC Capital Partners (JZCP) announced that it was planning to convene an EGMto approve a revised investment policy. The board says that, in line with this previous announcement, it is seeking to enshrine a strategy to look to realise investments, pay down debt and materially reduce commitments to new investments, such that capital may be returned to shareholders.

On 29 August 2019, JZCP completed its first tender offer for approximately $30 million. This was part of the previously announced plan to return approximately $100 million in capital to shareholders. JZCP says that it expects to return the balance of approximately $70 million to shareholders via a series of tender offers, special dividends or opportunistic market buybacks over the next 12-15 months.

Sale of Orizon and Avante

Shortly prior to the close of the first tender offer, JZCP finalized the sale of 80% of its interest in portfolio companies Orizon and Avante, 34% above NAV, for $65.5 million in gross proceeds received by the Company. This transaction brings total gross proceeds realised during the first six months of the fiscal year to more than $120 million.

Generating further liquidity

JZCP’s plan calls for raising liquidity from realisations, secondary sales of certain asset portfolios, joint venture partnerships and the previously announced US Side-Car Fund. However JZCP says that, while its Investment Adviser is aggressively pursuing the realisation strategy, JZCP’s portfolio of assets is highly illiquid and the sale of which is dependent upon positive market conditions. Shareholders are also reminded that JZCP and its Investment Adviser do not have control over a large portion of the JZCP portfolio and thus the Investment Adviser must seek the cooperation of JZCP’s portfolio partners to realise assets. Although it adds that, to date, our Investment Adviser has been successful in getting the cooperation of JZCP’s investment partners.

Secondary sales

Regarding secondary sales, JZCP says that is currently in the market with a portfolio of select US microcap assets; JZCP expects to realise between $150-170 million in gross proceeds prior to 28 February 2020 from these transactions.

US side-car fund

In addition, the Company’s Investment Adviser expects to launch the US Side-Car Fund within the next 45 days, targeting approximately $500 million. JZCP says that the bulk of any new US microcap investments will be directed to this new US Side-Car Fund, which will be substantially funded by third-party limited partners. In order to successfully complete the marketing of the US Side-Car Fund, JZCP will be required to invest approximately 5% of the fundraise in order to validate to future LPs that JZCP will continue to support its US microcap buyout program and team. It is anticipated that this investment will be called over a five-year period, thus putting significantly less of a burden on JZCP’s future cash flow.

Real estate assets

JZCP say that its real estate assets do require additional investments for debt service and certain pre-development expenses. At the end of last year, the Company’s Investment Adviser sold approximately half of one of JZCP’s Brooklyn, NY, development sites to HomeFed, a real estate investor and developer of mixed-use projects in the United States. The price was approximately at NAV, which had been marked up from original cost. The Investment Adviser is actively seeking investment partners or outright sales for a number of the Company’s other development sites. The Investment Adviser has indicated that it does not expect to make any new real estate investments, other than in the Company’s existing real estate portfolio.

Investment adviser focused on realisations

Additionally, other than honouring JZCP’s funding commitments and supporting its portfolio of assets, it is anticipated that no meaningful capital will be dedicated to new investments. The Investment Adviser instead intends to dedicate its activities to achieving realisations and working on the Company’s current portfolio of assets to enhance values.

The Board expects to publish a circular to all shareholders convening an extraordinary general meeting of the Company to approve this revised investment policy as well as the Company’s investment in the US Side-Car Fund as soon as practicable.

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