The newest, and largest, fund with a preference for employee ownership is the KPS Special Situations Fund, established by Keilin & Co. The KPS (for Gene Keilin, Mike Psaros, and David Shapiro) Special Situations Fund and KPS Supplemental Fund are together capitalized at $190 million.

Both KPS funds focus on investing in restructurings, turnarounds and other special situations. Investors in the Fund include state and private sector pension plans, financial institutions and Taft-Hartley plans. Among the funds’ investors are large U.S.-based financial institutions that are prepared to provide loans, leases and other forms of debt financing for KPS-owned companies.

KPS is targeting investments in companies with annual revenues ranging from $50 to $500 million and is looking to invest between $5 and $25 million of equity per transaction. In addition, they are prepared to pursue substantially larger transactions which they will fund through the KPS funds as well as by drawing on the significant direct investment capabilities of their limited partners and other investors. Moreover, through their investor group, they also have access to substantial lending and capital markets capabilities which will help them finance KPS portfolio companies.

Gene Keilin, Mike Psaros and David Shapiro have worked closely with the labor movement for almost a decade. They've had some remarkable successes. The most notable: these three partners worked for the Airline Pilots in putting together the United Airlines buyout in 1994, which created the country's largest majority employee-owned, unionized firm. The KPS principals have also advised labor in many of the other large union-led financial transactions in the United States and Canada, including Algoma Steel (Canada), Republic Engineered Steels, and Weirton Steel. Their aim is to structure transactions that align the interests of management, employees and capital.

KPS intends to "do well by doing good." KPS expects to realize significant capital appreciation by taking controlling positions in under performing middle-market companies requiring operational, financial or strategic restructuring, often in cooperation with unions representing the company’s employees. The KPS fund is unique in that it is the first fund ever raised on Wall Street that is committed to investing equity capital in unionized companies. Moreover, while many funds which invest in distressed situations pursue "slash and burn" tactics or seek to achieve an investment return through liquidation, KPS’s investment strategy is predicated on cooperative and constructive engagement with all of a company’s stakeholders.

KPS seeks to achieve an investment return by successfully turning troubled businesses into profitable and viable companies. As a result, the fund’s strategy is to purchase companies at attractive valuations and then implement an operational or financial restructuring at the close of the transaction. Such companies may be operating in bankruptcy or in default of their obligations to creditors.

Special situations include companies that have solid products and markets, but are confronting one or more of the following problems:

• Threat of closure or liquidation

• Operating in financial default or under Chapter 11

• History of recurring losses

• Inappropriate business strategy; operating and/or

management problems

• Excessive leverage

• Insufficient liquidity

• Insufficient capital for investment, modernization or growth

• Orphan divisions or subsidiaries of larger companies

• Family-owned businesses put up for sale

KPS’s investment strategy is predicated upon a constructive approach to investing in special situations, incorporating, to the extent possible, the involvement of all the company’s key stakeholders in the development of a restructuring plan. KPS expects that most investments will involve meaningful participation from a company’s employees, both in the restructuring process and in the restructured company. This approach has resulted in the successful restructuring of numerous companies and stands in sharp contrast to the confrontational approach often relied upon by other investors in distressed situations.

So there are alternatives to the slash and burn approach of "Chainsaw Al" Dunlap and his ilk.

For additional information, contact Eugene Keilin, Michael Psaros, or David Shapiro at KPS Special Situations Fund, L.P, 200 Park Avenue, 58th Floor, New York, NY 10166. Tel: 212-338-5100 Fax: 212-867-7980; email: kps@kpsfund.com