Private Equity
BDCs (business development companies) need money. SPACs (special purpose acquisition vehicles) have money they need to deploy. BDC, meet SPAC. It sounds like alphabet soup, but several SPACs and BDCs are discussing transactions, according to Michael Tew of research firm SPAC Partners. And it does seem to make sense. BDCs, which provide financing to middle and lower middle market companies, use their balance sheets to maintain strict leverage ratios, which means that they really could use some liquidity. Moreover, BDC share prices have plummeted in recent months, at the very time when their product is in high demand. Enter the SPACs. They have money. According to Tew, there are around 40 SPACs with about $9 billion in equity that have yet to announce a deal. Since many of them will meet their "invest or fold" deadlines within the next 12 months, they’re scrambling to find suitable targets and fighting for the same deals.
2 min read · 08 April 2009
Ripple: Private equity firms are planning for an "Obama effect," according to panelists at a Chicago AGC event. "Wherever they say they're spending money, PE firms will try to capitalize on that." (Chicago Tribune) Not a Sucker's Rally: Henry Blodget thinks we're seeing lights at the end of the tunnel. (Clusterstock) Hope You Didn't Follow His Stock Advice: Lenny Dykstra is broke and having his mansion and private jet yanked from him by a private equity firm (albeit one I've never heard of). (Fin Alternatives) Pimco: "Not very subtly distancing itself from the PPIP, which has only gotten less popular as its details have emerged." (Talking Points Memo) Did You Know: The last private equity deal valued at more than $1 billion was Blackstone's $1.19 billion deal for Allied Security Holding in July, 2008. (CNBC)
2 min read · 07 April 2009
Bankruptcy-related M&A surged in March with 34 acquisitions ($698mln), a level not seen in five years, since August 2004 (38), according to Thomson Reuters. “In the previous economic cycle bankruptcy-related M&A peaked in July 02 with 86 transactions announced and 8 months before equity markets reached the bottom and started their recovery,” a report from this morning stated. Meanwhile, according to data from Bankruptcy Week, the number of public companies that filed for Chapter 11 bankruptcy protection was almost as much as the two prior months combined. March saw 31 public companies go bankrupt. Add that to the respective 18 and 19 from January and February, and the total for public companies in Q1 is 68. That’s quite a few more than the private equity-backed company total of 25 (although some of them, like KKR’s Masonite, count as both). Follow the jump for charts.
2 min read · 07 April 2009
You may remember Goldman Sachs Liquidity Partners III LP. The group, part of Goldman's hedge fund group, raised $1.8 billion in late 2007, including $100 million from Goldman itself. Levering it 3x, the fund invested in distressed debt, including leveraged loans, mortgages and asset-backed securities. Well, they were juuuust a bit early. The fund was down more than 55% as of last fall. In fact, the effort proved so disastrous that Goldman decided last November to waive the fund’s lock-up period, allowing investors to recoup their money. The fund has a 1/20 fee structure, but with the redemptions it has received, its managers are basically working for free. Reading through yesterday’s Bloomberg article on the problems of Apollo Management, I have to wonder when that firm is going to do the same for its Apollo Credit Opportunities Fund, considering at least $2 billion worth of loans it bought have lost half their value. According to Bloomberg:
2 min read · 07 April 2009
IPO Chatter: It's back. But is it just chatter? Just because more companies want to go public, and there's one well-received IPO on the books, doesn't mean all the signs of a revival are there. (WSJ) Bank Meltdown Tours: One enterprising former banker is taking advantage of the crisis. "Instead of leaving Wall Street, Luan ... has launched a financial meltdown tour, guiding packs of mostly European tourists around the epicenter of the collapse-and explaining his own role in the crisis along the way." (Big Money) Breaking Ground: Can private equity play the infrastructure game? (The Deal) Yikes: What can happen when you lend or buy the debt in your own portfolio companies. (Reuters Columnist Margaret Doyle)
1 min read · 06 April 2009
When Big 10 Tire flipped to Chapter 11 last week, it was the fifth Sun Capital Partners portfolio company to do so in 2009. The turnaround firm's standard response to questions regarding its bankruptcies is "look at the percentages." And I would agree: Because of the size of its funds and because of the dirt-cheap prices it pays for failing companies, Sun Capital has many, many portfolio companies. Its website lists 70, to be exact. BUT: Sun has had five companies go bankrupt in 2009. Add that to the five that ended up in bankruptcy last year and you've got an even ten (eleven if you count its PIPE into Sharper Image from Sun Capital Securities). That represents 14% of the total portfolio, which is quickly approaching a high percentage.
2 min read · 06 April 2009
In the past month, write-downs on the year-end values of buyout funds have trickled into the press. The discounts have been attributed to a variety of factors, including mark-to-market accounting and weakened portfolio company performance. I post these with the caveat that its not fair to compare, because each firm can look at mark-to-market accounting slightly differently. Further, this list only includes write-downs from the nine funds we were able to gather information on. But on a rough year-over-year basis, Bain Capital IX and Blackstone Communications Partners took the biggest hits. On a quarterly basis, MatlinPatterson's first fund was battered the worst, with AIG Private Equity a close second. Here is a roundup of the numbers we have gathered to date:
1 min read · 06 April 2009
Signs: Things are so bad that lenders are ignoring defaults? (Economic Trend Analysis) Give Me One Reason: Why we should treat Detroit more harshly than Wall Street. (Breakingviews via Abnormal Returns) HEY! The Depression is over! Because Jim Cramer says so! (Cityfile) Happy To Know: Polaroids will live on under the umbrella of a private equity firm (after another failed to save it from a second bankruptcy). (Boston Business Journal)
2 min read · 03 April 2009
Bruckmann Rosser Sherrill & Co.’s third buyout fund may be the latest firm to enter what we’ve been calling “Fundraising Purgatory.” It’s a place where not-yet-aborted funds lay in wait for “market conditions to approve.” Since neither the firm or Knight Capital, its placement agent, wouldn’t call me back, I can’t be clear, but let’s look at the facts: Bruckmann Rosser entered the market, seeking $600 million, as early as July of 2007. That is 20 months ago. According to a Buyouts report, the fund accumulated $250 million from existing investors, with plans to hold a first close on that sum, in October 2007. Yet according to regulatory filings, the firm has
2 min read · 03 April 2009
As usual, we have a week of ratings downgrades on the debt of LBO-backed companies, via ratings agencies Moody’s and Standard & Poor’s. This week we have thirteen. One Note: This list excludes downgrades to ‘D’ for ‘default’ on companies that have filed for Chapter 11 bankruptcy protection. Check the quarterly LBO-backed bankruptcy list for those. However, it does include defaults and ‘SD,’ or ‘selective defaults’ on companies that have not yet filed for bankruptcy. I say this because this list is becoming just as much a way to track distressed debt exchanges as it is to track ratings downgrades. We also have a rebellious ratings agency first (at least in my experience). The story is this: Similar to public company analysts, debt-laden companies pay ratings agencies to examine and report on their debt. Sometimes, when a company’s ratings get too ugly, a company will ask the agency to withdraw its rating, and S&P or Moody’s will oblige. Such is the case with Six Flags, except instead of hiding its analysis from the public, S&P issued its first ever (to my knowledge) “unsolicited” rating on the company. Way to take on the man, S&P.
6 min read · 03 April 2009
