Brookfield Goes Deeper Into Turnaround & DIP Funds (BAM, SLF, CM, BPO)

Brookfield Asset Management (NYSE: BAM) and the Export Development Canada have announced the establishment of a C$1 billion fund with the backing of the “EDC” to provide debtor-in-possession loans, or DIP Financing, and other specialty finance solutions to Canadian companies undergoing a restructuring or reorganization.  Canadian Imperial Bank of Commerce (NYSE: CM) and Sun Life Financial Inc. (NYSE: SLF) are also involved as investors in this fund.  The size of the investments from CIBC and Sun Life were not noted in the release, but this comes on the heels of a larger US$4 billion investor consortium dedicated to investing in underperforming real estate deals with Brookfield Properties Corporation (NYSE: BPO).

Brookfield’s commitment to the fund is to provide 10% cent of the fund’s capital, or $100 million (Canadian dollars) and it will manage the fund.  In the management tasks it will identify and evaluate the investment opportunities for the fund. EDC is the largest investor with an initial participation of C$450 million which was noted as being able to grow to C$1 billion.

DIP financing is for companies which are seeking protection from creditors with capital to continue to operate their business while they complete their reorganization process.  This further notes that the fund will target mid-market and larger-scale opportunities where a minimum of C$20 million in financing is required.

This new fund will be providing financing for companies under a restructuring and is meant to help the viable viable enterprises emerge from the current recession in a strong competitive position.

In a deal announced last week, Brookfield said that the consortium would invest in equity and debt in undervalued real estate companies or real estate portfolios where value can be created in a variety of ways, including financial and operational restructuring, strategic direction or sponsorship, portfolio repositioning, redevelopment or other active asset management. It also noted that the investments would be targeted at corporate property restructurings with a minimum US$500 million equity commitment, and pursued on a global basis, but with a focus on North America, Europe and Australasia.

Also in last week’s consortium announcement, Brookfield said that other investors each contributed US$300 million to US$1 billion into the consortium, but Brookfield said that it allocated US$1 billion.

Brookfield Asset Management shares are down 0.9% at $20.00 today, and the 52-week trading range is $11.21 to $33.11.  About two years ago Jim Cramer said that Brookfield Asset management could be the next Berkshire Hathaway.  At that time, shares were close to $39.00.

JON C. OGG
AUGUST 19, 2009