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.
JP Morgan Chase & Co. (NYSE: JPM) has announced the launch of DealVault. This is a new technology that tracks private equity investments valuations, performance, risk and exposure analysis. JP Morgan's unit called Private Equity Fund Services (PEFS) developed the system to provide CFOs, deal and investor relations professionals with a platform to centralize deal tracking information.
DealVault will also integrate with accounting and back office systems, in order to allow administration one platform. Private equity managers will be able to store portfolio company information in a web-based solution, package information in an auditor-friendly format, allow independent valuation reviews, and to cut time spent aggregating and reconciling volumes of data.
This "PEFS" unit already provides a full suite of administration services to private equity firms, real estate firms, and institutional investors; and it currently services more than 200 funds representing $50 billion in committed capital, and serves the world's largest institutions with $110 billion in aggregate committed capital across thousands of private equity investments.
Does something seem wrong or off about the timing of this launch? In 2006 this would have garnered much attention. In 2007 it would have been mandatory. While the billionaires are all supposed to be immune to economic sensitivity, that just isn't quite holding up right now. Another wave of private equity will come again, at least that is what history dictates. But the launch timing is probably one that could have been picked better.
In what is likely to be a bit of a blockbuster, SEC Chairman Christopher Cox sent a letter to Swiss regulators indicating the Bear Stearns (NYSE: BSC) did not have to go the way of all flesh. According toThe New York Post "the 'fate of Bear Stearns was a lack of confidence, not a lack of capital,' Cox, the head of the Securities and Exchange Commission, wrote in a five-page letter sent to a Swiss regulator."
That letter will lead angry Bear Stearns sharedholders, who watched the stock fall from over $30 near $2, to question why JP Morgan (NYSE: JPM) was able buy the brokerage at a deep discount with help from the Federal Reserve. The missive may encourage Congress and regulators to question whether the takeover of BSC involved foul play.
First and foremost, calling this JP Morgan Chase (NYSE: JPM) $236 million purchase of Bear Stearns (NYSE: BSC) an acquisition is a stretch beyond what words can say. The $2.00 per share offer is perhaps the biggest fleecing of a deal ever. You probably heard takeover rumors on Friday regarding Bear Stearns. Well, this weekend it's true. The exception is that this is a take-under of the largest magnitude seen in the industry over at least the last two decades.
Frankly, the office building in New York alone is worth more than that. Add on the prime brokerage business. Then add on its equity underwriting business. The problem is all of its counter-party and derivative operations where the liabilities can theoretically never end on the fixed income side.
Back in January when the bad financial institution situation went from bad to worse, I noted that financial mergers may be mandated rather than preferred. Do the math. The Fed is providing financing for up to $30 Billion of Bear's less liquid assets, and close to $20 billion appears to be for mortgage related assets. Jamie Dimon and friends are stepping in for a fraction of what this used to be. $2.00 today, $30 on Friday, more than $60.00 a week ago and over $150.00 a year ago.
Many will try comparing this to Drexel Burnham Lambert implosion. That company wasn't public. That company was more of a junk bond player that didn't create as much of a systemic failure risk compared to this. You can't blame Jamie Dimon for being opportunistic like this, but the management team at Bear Stearns just got scarred for life.
Bear Stearns at first wasn't able to stop this run on the bank that happened last week and shortly before. But the firm put itself in this position over time with all of its leverage and there is ultimately no one to blame here but Bear Stearns itself, and its management that allowed this.
E*Trade (NASDAQ: ETFC) did something odd. It made a former vice chairman of JP Morgan Chase (NYSE: JPM) its new CEO. It would be hard to imagine that he has much experience in the discount brokerage industry. Donald Layton has been non-executive chairman of the company since Citadel Investment Group put $1.75 billion into the brokerage firm last November.
According toThe Wall Street Journal, "Citadel has nearly a 20% stake, and tapping Mr. Layton is a sign Citadel is getting antsy for results." The brokerage firm still have $12 billion of home loans on its books. It is hard to assign them a value while real estate prices are still dropping and default rates are rising.
Citadel may want to sell the discount brokerage firm but that would cause potential problems with other E*Trade investors. What would be left over is a company with a large pool of mortgages which are still falling in value. Getting a return on the discount brokerage operation might be a good idea on paper but separating it from the balance of the company is no "slam dunk". Shareholders don't want to be left holding that mortgage bag.
Douglas A. McIntyre is an editor at 247wallst.com.
The private equity scene in the US continues its freeze. So many firms are looking for opportunities overseas, especially in Asia. For example, according to a piece in The Wall Street Journal, TPG is finishing up its deal to buy a 43.4% stake in NIS Group, a Japanese lender.
Interestingly enough, it looks like JP Morgan (NYSE: JPM) wants to jump in too.
The firm announced that it has plowed $750 million into a new fund that's focused on Asia. The main principals of the fund, Varun Bery and John Troy, are the folks who built TVG Capital Partners, which has extensive experience in Asia.
No doubt, Asia is still growing at a nice clip, which means that deals require less debt. And, because of regulatory requirements, the deal-making tends to be in the form of minority stakes, which means less by way of equity capital infusions.
However, the fact remains that many other funds are gunning for the Asian market -- including Blackstone (NYSE: BX) -- which could drive valuations and lead to the kinds of problems that we've seen in the US.
"No Exit" is a 1944 play by Jean-Paul Sartre, which contains the famous line, "Hell is other people." At this point, the title could also describe Delphi's current Chapter 11 problem.
On the way to getting out of Chapter 11, auto parts company Delphi ran into the credit environment. Its $6.1 billion exit package, which has been set up by a group of banks lead by Citigroup (NYSE: C) and JP Morgan (NYSE: JPM), is in trouble. With the current fixed income markets in lock-down, hedge funds and other institutions don't want the Delphi paper.
The American consumer is not the only part of the US economy that's holding off on spending. So are institutional bond investors.
Based on a report from Bloomberg, it looks like Wall Street's premier investment banks -- including Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and JPMorgan Chase (NYSE: JPM) -- are slashing prices on their buyout debt backlog. In fact, some of the discounts are as much as 10% of the face value. Given that Wall Street is going to report horrendous financial results, it makes sense to deal with the problems now, right?
Interestingly enough, Wall Street had some help from failed deals, such as with SLM (NYSE: SLM). This trend has wiped out $51 billion in obligations.
Yet, there is still much to finance, such as Clear Channel, Harrah's, BCE and Alltel. So, we might also see some post-Christmas buyout bond slashing, as well.
You may think the subprime mortgage mess is huge. Well, just around the corner a larger elephant is looming and its impact may be even more devastating than the current credit crisis.
While it sounded like good news when banks sold $30 billion of loans for leveraged buyouts last week, $26.4 billion of that was for the First Data buyout. That sale came with a big price tag -- banks agreed to sell the debt at 96 cents on the dollar, which means they locked in losses after their fees.
And then there was the problem of what to do with the other 90% of LBO loans in the pipeline.
The Wall Street Journal[subscription] reported today that Citigroup Inc. (NYSE: C), Credit Suisse Group and J.P. Morgan Chase & Co. (NYSE: JPM) hold $400 billion in debt they promised for financing purchases private equity firms have in the works globally. If they can't sell the debt, they're left holding the bag, which means a lot less money for other loans. If the economy slows as expected and corporate profits weaken, the only way the banks will be able to unload the debt they're holding will be a fire sale on that debt at even deeper discounts then the First Data deal.
Sallie Mae (NYSE: SLM) is sick of having sand kicked in its face by its potential buyer, JC Flowers, and Flowers' banks.The private equity firm that agreed to pay $25 billion for the student loan company has come back with a lower price, claiming that Sallie Mae's financial future has gotten much worse. Now, Sallie Mae is suing to get its break-up fee of $900 million
According toReuters, "The suit seeks a declaration that Sallie Mae may terminate the merger agreement and collect the damages, that the buyer group has repudiated the merger agreement, and that no material adverse effect has occurred." SLM is arguing that there has been no meaningful change in its business since Flowers made its offer. The buyout firm and its banks make the case that legislation slashing subsidies to student lenders and a serious credit squeeze have cut Sallie Mae's value. Flower's banks are JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC).
The move by SLM may usher in a new wave of litigation as private equity buyers walk away from buyouts that they no longer think make financial sense. If Sallie Mae can win in court and collect its $900 million, a number of legal actions could follow brought by public companies that watched buyouts fall apart.
While it may seem odd, it is possible that the legal system will slow buyouts as much as the current credit crunch.
You know the feeling. You've done a lot of shopping -- and used your credit card heavily. It's so easy, right? Of course, until the heavy interest payments pile up.
Simply put, that has been the story for big-time financiers, such as Goldman Sachs (NYSE: GS), Lehman Brothers (NYSE: LEH), Merrill Lynch (NYSE: MER), Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and so on. They kept committing their balance sheets to provide loans to buy up companies. And, of course, private equity funds -- like KKR, TPG, Apollo, and Blackstone (NYSE: BX) -- were ready, willing, and able to take the largesse.
But now the bill is coming due.
Well, in this week's Barron's [a paid publication], there's an excellent story on this topic. In fact, the lenders were so eager to make these mega loans that they were loosey-goosey on the terms. For example, some loans even allowed for deferring debt payments (perhaps the subprime market was not the only crazy place, huh?)
Oh, the lenders also were willing to forgo escape clauses in loan agreements. Hey, wouldn't the gravy train last forever?
So what happens to the hundreds of billions in buyout debt? Barron's thinks that the lenders will sell the stuff at deep discounts. True, this will mean significant losses. But, if things are bad, might as well get everything written down now and then pave the way for a better future, right? Although, I have a feeling banks are going to be a little more circumspect when it comes to new buyout loans.
Founded in 2000, SelectMinds' original mission was to develop an online system for alumni. Well, it hasn't gained much traction. Besides, Facebook is the dominant player in the academic space.
Well, SelectMinds is taking another tact. The company is developing a system to allow for social networking in the corporate environment.
In fact, this week the firm obtained $5.5 million in venture capital. The investor is the venerable Bessemer Venture Partners.
This week, private equity firm Fortress Investment Group (NYSE: FIG) reported its Q2 earnings. Well, as should be no surprise, compensation costs were higher (not cheap to hire investment gurus). In fact, there was a net loss of $55.1 million. Although, the firm thinks a better metric is "pretax distributable earnings," which came to $143 million in Q2.
What's more, revenues fell from $328.3 million to $268.1 million. No doubt, the private equity game can be volatile.
On the conference call, Fortress CEO Wesley Edens had some interesting things to say about the turmoil in the financial system.
He said that it's going to take some time to clear out the huge amounts of debt that have yet to be placed for buyouts. Much of the debt is on balance sheets of firms like JP Morgan Chase (NYSE: JPM), Lehman Brothers Holdings (NYSE: LEH), and Goldman Sachs Group (NYSE: GS).
Two big private equity deals are having trouble getting banks to lend them money. This trouble reveals the essential function of private equity firms -- the ability to convince banks that the fees they'll get for financing deals exceed the risk of loss if the borrowers can't pay back the money. In the past, the banks would sell portions of the loan to other banks and investors to limit their risk. But the appetite for those investments is disappearing.
Perhaps the deal is not in trouble, but if it does go through, the terms might make it less profitable for Cerberus. For now, the five banks, led by JP Morgan Chase & Co. (NYSE: JPM), plan to take on about $10 billion of the debt and try to sell it later -- Chrysler and Cerberus will carry the other $2 billion.
The Wall Street Journal is reporting that the sale of $12 billion in debt related to the Cerberus Capital purchase of Chrysler Group from DaimlerChrysler (NYSE: DCX) has been postponed. Apparently the debt underwriters -- including J.P. Morgan Chase (NYSE: JPM), Citigroup (NYSE: C), Goldman Sachs Group (NYSE: GS), Bear Stearns (NYSE: BSC) and Morgan Stanley (NYSE: MS) -- have been unable to find buyers for the debt, which is part of a $20 billion loan package planned for Chrysler. The money will be used in Chrysler's production and finance operations.
This setback for the debt sale offers further evidence that liquidity is drying up and deals are becoming more expensive. Interest rates on these debt-fueled loans have been climbing rapidly, and are now headed toward 10% and higher. However, even at these rates, Cerberus's bankers had trouble finding buyers. As a result, the bankers will provide $10 billion in loans from their own pockets, with plans to sell the debt to the public at a later date. Cerberus and Daimler will kick in another $2 billion.
Cerberus and its bankers have stated that this financing problem will not delay the closing of the deal, which is scheduled for August 3.
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The private equity scene in the US continues its freeze. So many firms are looking for opportunities overseas, especially in Asia. For example, according to a piece in The Wall Street Journal, 
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The American consumer is not the only part of the US economy that's holding off on spending. So are institutional bond investors.
Founded in 2000, SelectMinds' original mission was to develop an online system for alumni. Well, it hasn't gained much traction. Besides, Facebook is the dominant player in the academic space.
