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Goldman $10 billion fund to invest in LBO loans

Goldman Sachs has raised $10 billion to create a fund that will invest in loans used to back leveraged buyouts and take advantage of a gap in the markets caused by the credit crisis, according to a Financial Times report on Wednesday.

Goldman will use the fund to buy senior loans, or those that are paid off before other debts. The investment bank already has a $20 billion fund that invests in mezzanine debts, paid after the senior debt, the newspaper reported.

The Financial Times wrote that by using the two funds, Goldman can commit to financing large deals on its own without having to recruit outside investors for the debt. The paper said the Goldman funds were much larger that those of other equity firms and investment banks.

Goldman's new fund will operate under Goldman's private equity arm, with money from the firm's clients, bank and partners, according to the newspaper.

While the fund-raising is not yet officially complete, its head, Tom Connolly is already looking at deals, the Financial Times reported. Citing people familiar with the transaction, the FT said one such deal would provide the senior debt for the sale of a $2 billion manufacturing company.

A representative from Goldman Sachs was not immediately available for comment. (Reuters)