JZ Capital Partners selling part of its US Microcap Portfolio to to repay substantial levels of debt

LONDON: JZ Capital Partners Limited, the London listed fund that invests in US and European microcap companies and US real estate, has agreed to sell its interests in certain US microcap portfolio companies to a secondary fund led by Hamilton Lane Advisors, L.L.C..

The Secondary Sale will be structured as a sale to a newly formed fund, JZHL Secondary Fund LP, managed by an affiliate of the Company’s investment manager, Jordan/Zalaznick Advisers, Inc..

Hamilton Lane and other secondary investors, being, as required by Hamilton Lane, David W. Zalaznick and John (Jay) Jordan II, the founders and principals of JZAI, and various members of the JZAI US microcap investment team, will be investing in the Secondary Fund, which will acquire the Company’s interests in the relevant US microcap assets.

The US microcap assets to be sold as part of the Secondary Sale include the Company’s interests in each of Flex Pack, Flow Controls, Testing Services, Felix Storch, Peaceable and TierPoint (together, the “US Microcap Portfolio Companies”).

In return, the Company will receive aggregate consideration of: (i) US$90 million in cash (less any fees and expenses), subject to certain adjustments; and (ii) a special limited partner interest in the Secondary Fund entitling the Company to certain distributions and other rights and obligations from the Secondary Fund.

The Secondary Sale marks a significant milestone towards the delivery of the Company’s previously announced strategy of realising value from its investment portfolio and paying down debt. Upon completion, the Secondary Sale will provide the Company with the needed liquidity to repay a substantial portion of its senior debt.

As a separate matter, the Company is also pleased to announce that it has completed on the sale of its Greenpoint property located in Brooklyn, New York. The Company received approximately US$13.6 million all in cash for its interest in the site which corresponds to a write down to the Company’s net asset value of approximately US$20 million.

The approximate write down has already been included in the updated valuations applied to the Company’s real estate investments as earlier announced in September and October 2020.

Pursuant to an agreement of purchase, sale and contribution (the “Sale Agreement”) entered into by, amongst others, the Company, the Secondary Fund and Hamilton Lane, the Company proposes to realise 100 per cent of its ownership interests in each of the US Microcap Portfolio Companies the subject of the Secondary Sale, being ACW Flex Pack, LLC (“Flex Pack”), Flow Controls Holding, LLC (“Flow Controls”), Testing Services Holdings, LLC (“Testing Services”), Felix Storch Holdings, LLC (“Felix Storch”), Peaceable Street Capital, LLC (“Peaceable”) and TierPoint LLC (“TierPoint”).

The Secondary Fund that is to acquire the US Microcap Portfolio Companies is a Delaware limited partnership formed on behalf of the Secondary Investors and managed by an affiliate of JZAI.

An affiliate of JZAI will also serve as the general partner of the Secondary Fund. In addition, affiliates of JZAI will retain their existing interests in certain of the US Microcap Portfolio Companies. The full potential commitment by the Secondary Investors to the Secondary Fund is up to US$110 million in aggregate, with Hamilton Lane’s full potential commitment being up to approximately US$100 million and, as required by Hamilton Lane, the JZAI Founders’ (or their respective affiliates) and members of the JZAI US microcap investment team’s full potential commitment being up to approximately US$10 million.

A total initial investment of US$90 million will be funded severally and not jointly by the Secondary Investors at the time of closing of the Secondary Sale to facilitate its acquisition of the US Microcap Portfolio Companies.

In addition to this initial investment amount, up to US$20 million of unfunded capital commitments is expected to be contributed to the Secondary Fund severally (and not jointly) by the Secondary Investors at the same time and to be funded as required. The resulting ownership interests in the Secondary Fund will be 90.9 per cent. owned by Hamilton Lane and 9.1 per cent. by the JZAI Founders (or their respective affiliates) and the JZAI US microcap investment team. In addition, the Company will receive a Special LP Interest in the Secondary Fund as part of the Aggregate Consideration as further explained below.

The Aggregate Consideration to be received by the Company for the Secondary Sale is to be comprised of: (i) Cash Consideration of US$90 million (less any fees and expenses); and (ii) a Special LP Interest in the Secondary Fund.

The Cash Consideration is subject to certain adjustments specified in the Sale Agreement and as such will be: (i) increased by the amount of any investments made by the Company to the US Microcap Portfolio Companies, and (ii) decreased by the amount of any proceeds received by the Company from the US Microcap Portfolio Companies, in each case between the date of execution of the Sale Agreement and the time of closing of the Secondary Sale.

The Special LP Interest will entitle the Company, as the special limited partner of the Secondary Fund, to certain distributions from, and certain other rights and obligations in respect of, the Secondary Fund.