New York, Oct 13: When Solutia needed to refinance debt and boost working capital this year, it found its bankers less than willing to take on new debt in the troubled fiber and plastics maker. So the St Louis-based spin-off of Monsanto turned to a new breed of non-traditional lenders — a group of hedge and buyout funds — to fill its capital needs. This week it closed on a new $350m financing package, partly to buy out debt held by Citigroup.

Some $200m of Solutia’s financing came from funds led by Cerberus Capital Management, which included hedge fund Highbridge Capital Management and Fortress Investment’s Drawbridge private equity fund. The rest came from Congress Financial Corp and Wells Fargo Foothill, asset-based lenders whose loans are secured with collateral like plants and machinery.
Cerberus, Highbridge and Drawbridge are part of a new breed of private equity and hedge fund lenders that are increasingly moving to fill a gap in borrowing requirements for troubled companies. And as banks consolidate and pull back, more funds are developing a taste for banking, extending an existing franchise in buying equity and debt.
“There’s a huge need for it,” said buyout veteran Wilbur Ross, head of the $2bn fund WL Ross & Co and an avid buyer of distressed companies. Such firms are finding a niche in riskier companies that use asset-based lenders. Bureau Report