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New company launched Back  
SVG Diamond Private Equity, an Irish company established for the purpose of investing in private equity buy-out funds in Western Europe and North America, has been set up and financed to the tune of €400 million.
The start-up was financed by an innovative structure, with €140 million raised in the form of equity and €260 million through a securitisation structure producing investment grade debt, referred to as a ‘collateralised fund obligation’.

SVG Advisers, the fund advisors of SVG Capital, a UK listed private equity fund of funds and fund advisory business, will be the investment adviser to SVG Diamond, responsible for all fund recommendations.

Key Capital, which merged with NCB as part of the broker’s €15 million buyout from Ulster Bank in August 2003, and in August of this year, sold its 10 per cent holding to the Quinn Group, acted as project manager and corporate finance adviser to SVG Advisers, with Nomura acting as arranger for the transaction.

The establishment of SVG Diamond represents the first transaction allowing for reinvestment and also marks the first time rating agencies have rated a transaction where the company can over-commit to private equity partnerships.

Over-commitment in private equity is an important element in ensuring that capital is efficiently deployed, according to Andrew Williams, chief executive of SVG Advisers. SVG Diamond has the capacity to commit up to €540 million of its initial capital base of €400 million.

In addition, SVG Diamond can reinvest proceeds from private equity realisations for seven years.
Initially, SVG Diamond will invest in a secondary portfolio of at least €150 million and will make primary commitments over the next two years, by which time it is expected to be fully invested. SVG Diamond will invest in the leading buy-out groups globally, several of whom have financed notable Irish leveraged buyouts in recent years such as Smurfit, Eircom, BWG, Clondalkin and C&C.

SVG Diamond’s portfolio will have a buy-out focus, with ultimate exposure to approximately 400-500 mature companies. Investors will be exposed to a low event risk and a corresponding high credit quality at the AAA, AA and A bond level.

‘This transaction underlines SVG’s involvement in Ireland, where it already advises over €500 million of commitments that have their management activities listed and governed in Ireland. SVG Diamond extends our commitment to the Irish market,’ said Williams.

According to Kyran McStay, director, Key Capital, ‘The SVG Diamond structure offers, for the first time, third party equity investors leveraged exposure to private equity incorporating regulatory capital and accounting benefits.’

SVG Capital has subscribed for preferred equity shares representing a commitment of €50 million at closing. Other major insurances companies subscribed for the remaining preferred equity shares representing a commitment of €90 million at closing. Preferred equity shares are unlisted and subordinated to the bonds, offering equity holders diversification as well as the potential for high return.

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