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CD&R Fund VII (Co-Investment), L.P.
At year-end 2014, Fund VII (Co-Investment) was valued at 1.6x, an increase from 1.3x a year earlier. The value increased to 1.7x at the end of the first quarter 2015, with $491 million of unrealized and public value remaining. CD&R continues to work with each of the management teams at ServiceMaster, TruGreen and US Foods to improve operating performance and to position each company for exit.
Recent Fund Highlights
- In July 2014, ServiceMaster completed an initial public offering. In February and June 2015, Fund VII (Co-Investment) sold 5.9 million shares of ServiceMaster, generating net proceeds of approximately $181 million. Including both realized proceeds and the discounted
- value of CD&R’s remaining shares, the implied valuation on the ServiceMaster investment was 2.7x its pro forma cost basis at the time of the June offering.
- In December 2014, Fund VII (Co-Investment) sold its remaining shares in HD Supply. In aggregate, Fund VII’s equity and debt investments in HD Supply collectively generated $240 million in total proceeds and a blended MOI of 1.4x (1.3x on the equity investment and 1.8x on the debt investment).1
- In January 2014, ServiceMaster completed the separation of TruGreen from its portfolio through a tax-free spinoff that was effected through a pro rata dividend to ServiceMaster shareholders. TruGreen is now a separate standalone portfolio company in which CD&R funds own a majority interest. CD&R Operating Advisor John Compton assumed the Chairman role at TruGreen and is working with management to complete the turnaround of its business.
Capital Invested
Fund VII (Co-Investment)’s fully realized investments in HD Supply and US Foods debt securities have generated proceeds of $253 million (1.5x capital invested). The remaining private investments in TruGreen and US Foods were valued at $42 million (1.2x capital invested) and $252 million (1.4x capital invested), respectively. The value of the investment in ServiceMaster, based on realized proceeds and the discounted value of the stock price2, was $291 million (2.6x capital invested).
Resources and Realizations
Fund VII (Co-Investment)’s final close was in July 2007, with total commitments of $540 million. Through March 31, 2015, Fund VII (Co-Investment) realizations totaled $347 million. The Fund has called a total of $493 million of capital commitments and recallable distributions from its partners. As of March 31, 2015, $85 million of capital was available to be called.
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There may be excess fee income received by CD&R that does not ultimately offset the management fee. Consistent with the historic approach of the CD&R fund partnership agreements, and in order to address tax concerns of certain limited partners, excess fee income (if any) would not be shared with the limited partners. As of the most recent management fee payment date (April 30, 2015) the amount of fee income to be carried forward and applied as a reduction of future management fees is approximately $2.4 million. We will continue to provide ongoing disclosure regarding any fee income-related credits that carryover to the following management fee payment period.
Liquidity Summary
The Fund VII (Co-Investment) portfolio companies have strong balance sheets, ample liquidity and minimal near-
term re-financing requirements. As of March 31, 2015, available liquidity to cash interest averaged approximately 30x, and the average ratio of net debt to EBITDA was 3.2x. Excluding TruGreen, the average available liquidity to cash interest was 9.1x, and the average ratio of net debt to EBITDA was 5.0x.
Current Portfolio
Investment Remaining Cost As of March 31, 2014 Compound Multiple (millions) Date $ of Investment Realized Unrealized Total Value Gross IRR* of Cost
