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Relationship between the preferred stock the fund

Quetion:

A private equity fund invests $100 million into a portfolio company and receives 100% of the preferred stock and 80% of the common stock of the company.  The preferred stock carries a face value of $100 million with an 8% accrued dividend (PIK) and the common stock will be issued for 1 cent per share (its nominal value on date of investment). The $100 million was called by the GP (General Partner) of the fund from the fund's limited partners. For all funds called, the first distributions received by the fund goes to the limited partners (the partners from whom the funds were called), until they receive 100% of the called capital plus an 8% compounded preferred return. The fund invests in all of the portfolio companies in the form of participating redeemable preferred stock (preferred stock plus warrants for common stock at no additional cost) with an 8% coupon.   Is there a relationship between the preferred stock the fund owns of the company and the preferred return the fund distributes to the limited partners?  Explain.

 

 

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