As the S&P/TSX Composite Index soared north of 14,000 this spring, junior resource firms were the pick of the litter. Everyone wanted to get their hands on the latest emerging oil and gas play (or mining play, for that matter).
Then the market came off, and investments in these smaller companies were the first to be sold. Now that the markets are incredibly volatile, few people are willing to touch the untested ventures.
The same thing happened in 2008. At the time, junior firms seemed doomed because equity markets couldn't be tapped, and most of Canada's major mezzanine debt players had either folded, or stopped lending. Not so in 2011. While there are certainly much fewer mezz debt lenders, some still exist and now is the time for them to strike.
Crown Capital Partners is a case in point. In February the firm closed fundraising for its mezz debt fund, and that money is now being deployed. Over the past two months Crown Capital has struck two deals, one for $25-million with Petrowest Energy Services Trust, and another for $10-million with Contac Services Inc. Both fall into the firm's $10-to-$25-million sweet spot.
Chris Johnson, the firm's managing partner, said demand for this type of loans is only growing, and he may even reopen the fund to raise more capital. So while investment bankers fear a choppy market, Mr. Johnson and his peers are embracing one. There certainly isn't loads of mezz debt cash to go around, but for selective companies, it could supplant the equity investors who are running for the hills.
Tim Kiladze