INSURING THE INSURERS

Global private equity firm Warburg Pincus provided further evidence last month that it marches to the beat of its own drum, as it backed the biggest player in an industry that, so far, only billionaire US investor Warren Buffett has offered to “rescue”.

While firms like Bain Capital, TPG, The Carlyle Group and Kohlberg Kravis Roberts reportedly decided that it wasn't worth the risk of investing in US bond insurers like Ambac and FCGIG, in which The Blackstone Group owns a minority stake, Warburg continued pumping money into MBIA, the world's largest bond insurer.

The private equity firm agreed to purchase $300 million (€204 million) in common stock as part of an oversubscribed $1 billion public offering, which MBIA increased from a planned $750 million due to investor demand.

What caused some eyebrows to raise, however, is that the deal occurred after Warburg saw its initial $500 million investment, made in December, lose more than half its market value. In December, Warburg invested at a $31 per share; its second investment was made at $12.15 per share, a 14 percent discount to MBIA's closing price on 7 February.

A person familiar with the matter told sister website PrivateEquityOnline.com that the stock's virtual free fall since December fails to reflect the company's underlying fundamentals, as well as a long-term business plan that projects an increase in infrastructure-related financing, thus making MBIA “wildly undervalued”.

David Coulter, a Warburg Pincus managing director who leads the firm's financial services investments, said in a December statement that MBIA's “high quality and liquid investment portfolio and the ‘pay-as-you-go’ nature of its insurance liabilities give it a strong liquidity profile”.

To date, MBIA has been the most proactive of the big bond insurers in terms of trying to ward off the threat of losing its AAA credit rating with capital infusions. Via rights offerings and a $1 billion debt issue in January, the company has raised nearly $3 billion.

RIVERSTONE, CARLYLE LEAD $500M ENERGY DEAL
The latest collaboration between The Carlyle Group and energy-focussed Riverstone Holdings is a $450 million (€304 million) investment in a new oil and gas company, Dynamic Offshore Resources. The company's founders and management will also commit up to $50 million. The Houston-based company plans to acquire and develop oil-producing properties in the Gulf of Mexico. Riverstone and Carlyle frequently partner on deals and have raised three energy-related funds together.

MONEYGRAM LINES UP $710M FROM THL, GOLDMAN
Goldman Sachs and Thomas H. Lee Partners are set to own 63 percent of MoneyGram International, a payment services company that has suffered fallout from its exposure to subprime mortgage-backed securities. THL and Goldman expect to invest $710 million (€488 million) in equity to recapitalize the company, but may invest as much as $775 million, according to a statement. Goldman Sachs has also agreed to provide debt financing of up to $500 million. MoneyGram also said it expects to obtain an additional $200 million in debt financing prior to the close of the transaction.

ALLIANCE DATA ABANDONS BLACKSTONE LAWSUIT
Alliance Data Systems has dropped its case against The Blackstone Group less than two weeks after suing the private equity firm to force the completion of the $7.8 billion leveraged buyout agreed in June 2007. The Texas-based provider of transaction, credit, and marketing services said it dismissed the lawsuit “with prejudice”, meaning it is not prevented from filing the same claims in a new lawsuit, because Blackstone court filings and correspondence with regulators indicated it was still committed to closing the deal. The agreement includes a break-up fee and reverse break-up fee, each of which is worth $170 million.

TPG, SUMITOMO GO HOSTILE ON SEMICONDUCTOR BID
Sumitomo Heavy Industries (SHI) and TPG have gone public with their bid to purchase Nasdaq-listed Axcelis Technologies following 18 months of failed attempts to negotiate a buyout of the semiconductor company. Japanese company SHI and private equity firm TPG have made a $544 million (€374 million) take-private offer. Though the $5.20 per share offer represents a 28 percent premium over Axcelis' 8 February closing share price, Axcelis counters that the offer is nearly 10 percent less than the stock's average closing price in the past 52 weeks.

GSO SCRAPS $1.1BN REDDY ICE DEAL
GSO Capital Partners, newly part of The Blackstone Group, has agreed to pay a $21 million breakup fee to Reddy Ice, the largest distributor of packaged ice in the US. GSO agreed to buy Reddy Ice last July for $1.1 billion. Morgan Stanley agreed to provide $700 million in financing for the deal, but was widely reported to have said in September that it might withdraw from the deal. GSO will pay a $21 million break-up fee to Reddy Ice, while Reddy Ice will pay $4 million of fees and expenses incurred by GSO in relation to the failed deal. Earlier this month GSO, a leveraged finance-focussed alternative assets manager with $10 billion under management, was acquired by The Blackstone Group for $930 million.

AMERICAN CAPITAL BACKS MEDICAL DEVICE MAKER
Listed asset manager American Capital Strategies has invested $66 million (€45 million) in medical device maker Avalon Laboratories. The investment was in the form of a senior term loan, senior subordinated debt and convertible and preferred common equity, in addition to a revolving credit facility. Avalon manufactures disposable cardiopulmonary vascular cannulae, devices that connect patients to life support machines.

FALCONHEAD ADDS TO ENDURANCE SPORTS PLATFORM
Sports-oriented private equity firm Falconhead Capital has agreed to acquire Inside Communications (ICI), a publisher of numerous competitive cycling and triathlon titles. ICI will be incorporated into recently formed Competitor Group, an endurance sports media and event platform. This investment is Falconhead's fourth endurance-sports deal in just over a month. On 7 January, the firm, which manages approximately $500 million, announced the acquisitions of three endurance-sports companies participating in publishing, event-planning, and other related activities.