bloggingbuyouts

Lately, there's been lots of dire talk about the private equity world. Returns are likely to be much lower and perhaps there will be many firms that shut down.

Indeed, such things may turn out to be true.

However, whenever there is extreme turbulence and a pervasive credit crunch, there are also big opportunities to make money. Just look at Apollo Management and Cerberus Capital. Both firms made a killing during the difficult early 1990s.

Fast forward to today, and we may be seeing something similar with one of the top beneficiaries possibly being Lone Star Funds. Yes, this week the fund purchased a collateralized debt portfolio from Merrill Lynch & Co. (NYSE: MER) at 22 cents on the dollar [subscription required]. The face value on it? About $30.6 billion.

This is not a one-off deal as it looks like Lone Star is hungry for high-risk debt. For example, the firm recently purchased the mortgage division of CIT Group Inc. (NYSE: CIT) and acquired Bear Stearn's mortgage segment. There was also the purchase of Accredited Home Lenders Holding Co. for $295 million.

The Carlyle Group isn't worrying about the PR fallout from that one fund blow-up. At least that is how it looks today.

The private equity giant has announced the close of the tenth U.S. Leveraged Finance team's Collateralized Loan Obligation, or CLO, fund. This one has been named the Carlyle Credit Partners Financing I and the funding was for $450 million.

The fund will use traditional CLO structure for AAA, AA, A and BBB rated liabilities. Carlyle believes this fund will allow Carlyle to purchase senior loans at attractive prices and finance them with 12 year debt. The advantage to this is that Carlyle noted that there will be no mark-to-market pricing triggers. That will allow these to be bought and held for the duration and will help allow for less of the mess in the current environment if the conditions of today prevail.

With the close, Carlyle now manages $10.3 billion in leveraged finance assets in CLO's. JP Morgan, of JPMorgan Chase & Co. (NYSE: JPM) completed the structuring and acted as placement agent.

Jon Ogg is producer and editor of the Special Situation newsletter for 247WallSt.com.