bloggingbuyouts

This week, some of the top veterans in private equity -- TPG's David Bonderman, Carlyle's David Rubenstein, and KKR's George Roberts -- got together at a conference in Hong Kong. And, all in all, it was fairly depressing (hey, I guess that's what happens when you lose billions and billions of dollars).

Take Bonderman. He thinks the downturn will be protracted, calling it an L-shaped recession (the more common description is a V-shaped recession, which means there is a strong snapback). In fact, he thinks U.S. unemployment will hit 10% or so.

Then again, keep in mind that Bonderman lost about $1.3 billion on his six month investment in Washington Mutual.

Despite all this, Bonderman still has an appetite for investments. For example, he's focusing on the debt securities from hedge funds. Because of massive redemptions, the prices are at distressed levels.

Rubenstein also gave a grim presentation (he thinks the downturn can last several years). But, he is still bullish on some opportunities, especially in Asia. For example, he thinks China offers some compelling valuations and that the country may become more open to outside investments.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

So you think there's a credit crunch and a glut of property on the market? Tell it to Manhattanites. Global private equity giant The Carlyle Group has announced along with Extell Development Company and RREEF that they have secured a $613 million construction loan for the development of two luxury residential buildings at Riverside South on Manhattan's Upper West Side.

Deutsche Bank led the large lending consortium of nine banks that provided the financing. The release calls this the largest construction loan secured in the U.S. in 2008.

This property group is located on the upper West Side located at West 62nd and West 63rd Streets between Riverside Boulevard and Freedom Place South. The two buildings also total some 880,000 gross square feet and the buildings are under construction. For now, the completion dates are slated for the first half of 2010.

Riverside South is a 13-acre tract of land purchased by Carlyle and Extell for $1.8 billion in 2005. One building will be rental properties and one will have dual rental and ownership units.

"The rest of us" have a hard time understanding where the endless money comes from to keep buying up these micro-spaces for more than many will ever amass in an entire lifetime. When you see people still willing to pay $1 million for under 1,000 square feet, it's no wonder at all how or why these projects get financed.

In a report (subscription required) out of the Dow Jones LBO Wire, Carlyle Group L.P. has delayed its deadline for the fund-raising efforts for its new Carlyle Partners V LP. The delay is said to have been moved to the end of the year for it to close on its fund raising efforts. Carlyle V's original closing date was May 30, and it received investor consent to extend the final closing date to Dec. 31 at the very latest.

Fund V efforts started in 2007 and was said to have quickly held an $8 billion first closing with a target of $15 billion and a hard cap of $17 billion.

Carlyle is not the first nor the only facing delays. The Blackstone Group L.P. (NYSE: BX) and Madison Dearborn Partners both delayed the closing of private equity funds earlier this year.

The Carlyle Group isn't worrying about the PR fallout from that one fund blow-up. At least that is how it looks today.

The private equity giant has announced the close of the tenth U.S. Leveraged Finance team's Collateralized Loan Obligation, or CLO, fund. This one has been named the Carlyle Credit Partners Financing I and the funding was for $450 million.

The fund will use traditional CLO structure for AAA, AA, A and BBB rated liabilities. Carlyle believes this fund will allow Carlyle to purchase senior loans at attractive prices and finance them with 12 year debt. The advantage to this is that Carlyle noted that there will be no mark-to-market pricing triggers. That will allow these to be bought and held for the duration and will help allow for less of the mess in the current environment if the conditions of today prevail.

With the close, Carlyle now manages $10.3 billion in leveraged finance assets in CLO's. JP Morgan, of JPMorgan Chase & Co. (NYSE: JPM) completed the structuring and acted as placement agent.

Jon Ogg is producer and editor of the Special Situation newsletter for 247WallSt.com.

A recent article out of The Economist that was featured on CFO.com this morning, "The Comeback of Private Equity," discusses that private equity firms could be an uncertain remedy for the credit crunch.

The private equity industry possesses two main characteristics as of late. First, huge leveraged buyouts are being replaced with purchases at distressed prices with less leverage. The second private equity factor lies in the fact that these companies have a lot of cash and capital to spend. With all this capital and all the distressed debt, private equity firms can buy loads of debt at low prices.

TPG has just gone after a major finance deal and The Carlyle Group recently closed a $1.4 billion fund that capitalized on low prices. TPG, Blackstone and Apollo are currently negotiating with Citi to pick up $12 billion in frozen loan off their balance sheet. Yet another example-Apollo, a firm with a historical focus on distressed debt, plans to go public.

While this shift in the market may help alleviate some of the credit crisis and earn private equity some returns, the jury is still out. Some regulators are wary of this new trend in private equity, wondering who will run the banks.

The article also points out that the true value of a private equity firm depends on its ability to improve portfolio company performance, not in "working magic" for financial institutions.

While I agree on the verdict still being out, this is actually a relief to see. Frankly, the cash has to be put somewhere and the good news is the debt markets have thrown out the baby with the bathwater. There will be real winners and real losers in this. There always are. But this will kick back a steady flow of funds or will at some point, and those funds will either be paid to partner/client groups or will be used to fund investments when a better climate is present. We won't be seeing any major club deals like we used to for $10 billion and $20 billion or more.

Someone has to act as a vulture. The issue always boils down to "at what price is this worth the risk?".

The Carlyle Group is apparently downplaying reports of recent losses tied to loans. The private equity giant issued a statement on Tuesday to outline its exposure to Carlyle Capital Corporation.

Reuters also has a piece describing the situation. In the report, The Carlyle Group stated that the $150 million credit line to affiliate Carlyle Capital Corporation will have a limited impact on The Carlyle Group and its affiliates.

Carlyle Capital is a legally independent entity from The Carlyle Group, and as such it would technically have limited real damages to the parent even if it trades residential mortgage-backed securities. Having this corporate structure with different entities is the same reason that movie studios keep individual entities for each movie, and it is the reason that conglomerates keep entities separated from each other. This keeps the issues inside one operation from ever toppling the whole group.

One note was one of the Carlyle Group's investment funds or portfolios hold Carlyle Capital shares. Carlyle stated that the The Carlyle Group is working tirelessly with Carlyle Capital Corp to "assist it in its efforts to maximize value for all interested parties."

Unless they have figured out a way to start making firms give real bids on loans, they can try to assist all they want. It's just going to take some time and some pain for this to work itself through the system. The pain isn't yet over. I have shown how vulture filings are starting to crop up. Maybe that is the solution.

There is one issue that may be more pressing than any real monetary losses, and that is the "image fallout" that Carlyle would take.

Carlyle Group co-founder David Rubenstein spoke at a Washington symposium on the private equity industry, and his predictions for the future aren't too rosy.

According to TheDeal.com, he said that "I think the golden era of private equity is probably behind us, and we're in a new era and need to adapt."

Among the challenges are a tightening of the credit industry (duh), and a political climate that is becoming increasingly hostile to the industry.

Addressing the image problem, he opined that "It's very good for people like Carlyle to say we have great rates of return, but now that isn't enough. We have to explain to people why it's a good thing for the economy and go to members of Congress and the government and the press. If you ignore this function, you won't be a very successful private equity professional, in my view. We can't run away from our critics.'"

Much of the industry's image problem can be related to the greed of Steve Schwarzman. His Blackstone (NYSE: BX) has lost around 40% of its value since it closed trading on the day of its IPO. The public offering was widely seen as an attempt by Schwarzman to cash out part of his holdings at the height of a bubble of sorts, at the expense of minority shareholders.

But Rubenstein is right. The industry can fix its image problem if it makes a concerted effort. The benefits of buyouts are many, but little understood by most people because the only people bothering to address the issue publicly have been special interest groups opposed to buyouts.

The IPO of Blackstone Group (NYSE: BX) continues to deteriorate but that doesn't seem to be an issue for other private equity firms that want to go public.

The latest buzz comes from The Carlyle Group, another top-tier global player. According to a report in the The Wall Street Journal, Carlye's managing director Jason Lee has called Blackstone's IPO a success and said that his firm is mulling the possibility of hitting the public markets.

Actually, I wouldn't be surprised if Carlyle is working on putting together a prospectus right now. The fact is that Blackstone's valuation is still pretty frothy.

In fact, Carlyle may have no choice. With an IPO, it's easier to retain and recruit key employees (because the stock has liquid value).

There are also the possibilities with acquisitions. As seen with BlackRock Inc.'s (NYSE: BLK) deal to purchase a hedge fund this week, public stock can be a very useful tool.

So, we might see a filing for Carlyle in the summer and perhaps an IPO in the fall.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

By the end of the year, public investors may have a variety of private equity firms to invest their money in.

The latest? Well, according to a piece in the Washington Post, the Carlyle Group may be prepping an IPO filing.

In fact, the firm's cofounder, David M. Rubenstein, thinks that his firm will be an ideal candidate.

However, he is playing it safe; that is, he wants to see how the Blackstone IPO fares.

Basically, I think this really means he is going to do an IPO. From what I can detect, it looks like there's a tremendous amount of investor interest in the upcoming Blackstone deal.

I recently had lunch with several wealth managers (who work for Blackstone's underwriters) and clients are begging to get a piece of the deal.

I also think a Carlyle deal would be well received. According to Rubenstein, his firm returned a stunning $10.2 billion to its investors in 2006.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

The Carlyle Group has agreed to buy 49% of Yangzhou Chengede Steel Tube for 80 million dollars. The company manufactures large-diameter seamless steel pipes, and Carlyle's investment is expected to help the company grow its business in China as well as internationally. According to Huai-De Zhang, Yangzhou's founder and chairman, ""In China, Carlyle has demonstrated a deep understanding of local businesses and an ability to work well with Chinese companies. The Carlyle brand will also help attract senior management talent to help expand both our domestic and overseas business."

While the deal is not particularly noteworthy size, there are two factors that make it interesting:

1.) There have been numerous reports that Chinese companies were not exactly impressed with the idea of the U.S. private equity firms getting involved. However this deal, along with Huai-De Zhang's comments about "the Carlyle Brand" suggest that that may be changing. If it is, we may be able to expect rapid growth in private equity in China.

2.) Earlier this year, I wrote that Carlyle Group Chairman David Rubenstein had told Maria Bartiromo that his firm would double its investment in China in 2007. If Carlyle makes good on that promise, and other buyout shops follow its lead, we could see an LBO-fueled continuation of the bull market in China.

The Goodyear Tire & Rubber Company (NYSE: GT) is no longer in the engineered products business. The company agreed to sell its Goodyear Engineered Products division to Carlyle for $1.47 billion in cash.

Goodyear Engineered Products manufactures things like conveyor belts, power transmission products and air springs. The division consists of 32 facilities and has 6,500 employees. Last year, it generated about $1.5 billion in revenues.

Yes, there's not much synergy with the tire business. Goodyear has been shedding non-core assets over the past few years and is trying to pare down costs. No doubt, the global tire market is brutal.

As for Carlyle, it will get a license to use the Goodyear trademark. That should be a great help in terms of business continuity.

Moreover, it looks like Goodyear booked a gain on the sale. As a result, the company's stock spiked 4.75% to $31.73.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

It's been clear in the private equity world for months, maybe years: some big firm will go public. Since sometime in 2003, the buzz has been focused around the possibility that the Carlyle Group might be the one. Tennille Tracy, writing for the WSJ's Deal Journal [subscription required], points out some reasons why it seems like a good fit; a great brand name, a nicely-diversified portfolio from mezzanine to real estate, a history of selling itself to the public (the firm sold 5.5% to CalPERS in 2001).

With so many rumors that the Blackstone Group's IPO was pending, wouldn't it make sense that Carlyle might be battling it out with its rival for first place at the public market finish line?

Nope, according to the FT and Carlyle spokesman Chris Ullman's confirmation with the Deal Journal. "It's not something that we're working on." Of course, that doesn't rule out the eventual (or even imminent) offering, but it seems that Blackstone will most definitely come out of the private closet first.

I would argue that the biggest news item of the week has slipped under the radar of most investors: after a record-breaking run of huge private equity deals, the Carlyle Group has instructed its people to start "playing it safe," which, of course, means fewer deals. In a recent memo, co-founder Bill Conway wrote that "fabulous profits are not solely a function of our investment genius, but have resulted in large part from a great market and the availability of enormous amounts of cheap debt."

According to BreakingViews, Conway predicted that "terrorism, rising oil prices, trade protectionism, rising labor costs in China and India, central bank tightening or even a multibillion bankruptcy" could lead to the end of liquidity and the cheap debt that has propelled the success of private equity.

I give a lot of credit to Carlyle for beginning to put on the brakes, but this may not bode well for the short-term performance of the markets: private equity deals have been a major boon to the market's performance in recent years and a slow-down in that arena could hurt performance.

Cerberus Capital Management, already invested in the automotive industry with its stake in GMAC purchased from General Motors Corporation (NYSE:GM) last year, is rumored to be one of the private equity firms considering buying the US car unit from DaimlerChrysler (NYSE:DCX). Adding fuel to the rumors: the company recently contracted with Wolfgang Bernhard, a former auto executive. His old boss? Among others, Chrysler.

Brett Hoselton, Keybanc Capital Markets analyst said in a note to investors that a "source" indicated that Cerberus and the Blackstone Group together are the "leading contenders" to purchase Chrysler Group from the global car company -- and that neither Apollo Management Group, Carlyle Group, General Motors, or Canadian auto parts company Magna International (all of which have been said to be looking over the books) are still likely candidates.

Cerberus and Blackstone are currently poring over Chrysler's books; Doug McIntyre brings up the question of whether the firms are running the numbers on selling off brands. That certainly makes sense; the two most popular ways to improve value in a company are to (1) cut costs and to (2) spin off units. I wonder whether Bernhard's specialty is more efficiencies or dealmaking?