Posts que contém a Tag Bankruptcy
08
maio
2009
How Private Equity Could Rev Up the U.S. Economy
How Private Equity Could Rev Up the U.S. Economy
Two out of five private equity firms will disappear. The rest will feast off the financial wreckage
By Peter Carbonara and Jessica Silver-Greenberg
Business Week
Donald B. Marron, founder of the $3 billion private equity firm Lightyear Capital, has been eyeing financial wreckage for more than a year. In early 2008 Marron, the former chairman and chief executive of brokerage PaineWebber, sent teams of analysts to scout out more than 200 struggling U.S. financial firms. So far Marron has made only one deal, buying a stake in student lender Higher One last summer. But the 74-year-old art aficionado, whose starkly modern New York office brims with abstract paintings, says dealmaking will soon pick up dramatically. “We expect this trend to continue,” he says.
While some attention has been paid to the vultures now circling the troubled banking sector, private equity is beginning to venture out across the economy in search of deals big and small. Glen T. Matsumoto, a partner in Swedish buyout shop EQT Partners, is looking for more ways to spend the $1.5 billion his firm has amassed for infrastructure and energy plays, having picked up Michigan energy company Midland Cogeneration Venture in March. Brian A. Rich of Catalyst Investors, an upstart buyout shop with $300 million in assets, recently plowed $5.6 million into Mindbody, a California software company. He’s hoping to invest in more cash-starved technology and media outfits. “We think it’s a great time to put capital out,” says 48-year-old Rich, who ran Toronto Dominion’s (TD) U.S. merchant banking arm before starting Catalyst in 2000.
It’s been a rough two years for private equity firms, those freewheeling and much-vilified financiers who buy companies only to sell them later for a profit. The buyout boom that ended in 2007 wasn’t pretty; many of the deals made at the height of the frenzy have been disasters. Bankruptcy courts are littered with private equity blunders, including household names Chrysler, Tribune (TXA), and Linens ‘n Things. Such high-profile blowups heightened private equity’s reputation as a group of fast-buck artists who are better at destroying companies than running them.
But a strange thing has happened. While the experts were proclaiming—and maybe even celebrating—their death, private equity firms were quietly bulking up their war chests and readying themselves for a new wave of deals. By some measures they’re stronger than ever: Firms are sitting on a record $1 trillion with which to make new purchases, according to research firm Preqin. “They are showing up at the party with a wheelbarrow full of cash,” says Donna Hitscherich, a professor at Columbia Business School.
Slowly and deliberately, firms are mobilizing their forces to exploit huge opportunities being created by the recession. Some big buyout firms, filling the void created by the financial crisis, are acting like traditional investment banks, providing loans to troubled companies and even advising executives on mergers. Some firms are aggressively hiring and firing buyout specialists, turning the cold eye they usually train on companies onto themselves. Other firms are prowling bankruptcy courts in search of cheap assets or are capitalizing on government stimulus spending. “There is every reason to believe that private equity will have tremendous opportunity once we hit bottom,” says Colin Blaydon, director of the Center for Private Equity & Entrepreneurship at Dartmouth’s Tuck School of Business.
When private equity starts cranking up its dealmaking machine—and it will, eventually—the $1 trillion it has amassed could help revive the economy by pumping crucial capital into the markets. “Private equity will be an integral part of this country’s economic recovery,” says Gregg Slager, a senior partner at accounting firm Ernst & Young. Noted Stephen A. Schwarzman, founder of Blackstone Group (BX), in the private equity firm’s March annual report: “Getting the world economy moving again will take more than government intervention.”
STILL ATTRACTING INVESTORS
Private equity’s surprising resurgence is a study in managing through a downturn. With markets and businesses blowing up all around them, buyout firms calmly made their case to big investors that they were still worthy stewards of capital. In 2008 they attracted $554 billion from pension funds, university endowments, and other big investors, down only modestly from the record $625 billion the previous year. Even this year’s seemingly small tally thus far of $49 billion still puts private equity on track to match 2004’s total of $206 billion, the sixth-highest ever.
Partly that’s because returns haven’t been as awful as feared. Private equity funds lost an estimated 20% in 2008. That was on a par with hedge funds and handily beat U.S. stocks (-37%), real estate (-38%), and commodities (-47%). Big investors think private equity will perform better in the future, too. U.S. corporate pensions are assuming their private equity holdings will return 10.1% a year over the next five years, compared with an estimated 7.8% for hedge funds, according to research firm Greenwich Associates.
The nation’s largest pension fund, California Public Employees’ Retirement System, even boosted its target for private equity holdings in its portfolio by four percentage points last year. “We’re strongly committed to private equity, which helps diversify the portfolios of long-term investors,” says CalPERS’ spokesman Clark McKinley. Robert Hunkeler, who manages the $13.1 billion in International Paper’s (IP) pension funds, says he’s keeping his stake in private equity at 5% despite recent losses.
The next few years will be dismal for many firms, no question. Buyout shops may be sitting on piles of cash for new purchases, but their portfolios also are stuffed with companies at risk of folding unless they can refinance their debt. Boston Consulting Group estimates that 20% to 40% of private equity firms will disappear altogether in the next few years.
But the wiliest players have inoculated themselves from the worst of the pain. During the boom years, firms used a number of slick tricks to extract money from companies right away and ease potential losses. First they loaded the companies they bought with debt and kept the proceeds for themselves. Then they collected ongoing management fees from those same companies.
Often they did both. Kohlberg Kravis Roberts, founded in 1976 by Henry R. Kravis and George R. Roberts, pulled off the biggest buyout ever in October 2007 when it joined with another big firm, TPG, to buy Texas utility TXU for $45 billion. (KKR also pulled off the largest transaction during the last buyout boom with its $31 billion bid for RJR Nabisco in 1989, the controversial deal immortalized in the book Barbarians at the Gate.) After picking up TXU, KKR and its private equity partners immediately collected $300 million from TXU for “certain services” associated with the deal, according to filings with the Securities & Exchange Commission. Plus, the firms are “entitled to receive an aggregate annual management fee of $35 million,” which “will increase 2% annually.” TPG and KKR declined to comment.
Private equity firms also exploited the remarkably easy lending environment during the boom, negotiating financing terms with unprecedented flexibility. Firms often had to put up minimal capital to close a deal. The maneuvers are paying off now.
Consider the tale of Chrysler. Cerberus Capital Management—named after the mythical three-headed dog that guards the gate of Hades—bought the troubled carmaker in May 2007 for $7.4 billion. Founder Stephen A. Feinberg, a secretive financier with blue-collar roots, has, with hard-nosed dealmaking, transformed Cerberus over the years from a scrappy vulture into a private equity stalwart. In the case of Chrysler, Cerberus contributed only $1.2 billion in cash. And even though Chrysler has filed for Chapter 11, Cerberus isn’t likely to lose all of that money; it may be able to offset some of its losses with Chrysler Financial, the carmaker’s lending arm, which isn’t part of the bankruptcy. Cerberus could merge the lender with another Cerberus investment, GMAC Financial. “It is a big hit,” says one Cerberus executive of the bankruptcy. “But it won’t break the company.”
To be sure, the days of larger-than-life dealmaking are over. Banks are no longer providing the loans that fuel the biggest buyouts. Small purchases will replace megabuyouts, and firms will likely focus their energies on sprucing up operations rather than extracting fees and engineering financial gains. “It’s back to the future,” says William E. Ford, chief executive of General Atlantic, a private equity firm with $13 billion in assets.
Some firms have even begun to deemphasize buyouts, quietly transforming themselves into diversified financial players that provide a wide array of money management, trading, and advisory services. Schwarzman, the 62-year-old head of Blackstone Group, is aggressively filling the void left by the Lehmans of the world. Schwarzman’s ambitions are as grand as his New York City apartment, a 35-room triplex once owned by John D. Rockefeller. At the firm’s start in 1985, Schwarzman and co-founder Peter G. Peterson shared a secretary and oversaw a grubstake of just $400,000. Today Schwarzman, infamous for a lavish birthday party he threw himself in 2007, sits atop more than $90 billion in assets and employs more than 1,340 people. Blackstone collected $410 million last year—not from its bread-and-butter buyout business but from advising other companies on mergers, acquisitions, and restructurings. Said Schwarzman in the firm’s annual report: “Our financial advisory group delivered record fees last year by meeting the demand for a trusted, independent adviser.”
PROFITING FROM THE PAIN
Blackstone’s advisory clients range from troubled insurer AIG (AIG) to the Ukrainian government. In December Tim Coleman, who co-heads Blackstone’s reorganization and restructuring group, flew to Detroit to meet with Ford Motor’s (F) CEO, Alan Mullaly, and other top executives. Coleman’s recommendation: Rework the debt. After that initial meeting, Mullaly hired Blackstone and Goldman Sachs (GS) to dispense advice. The three companies spent the next few months brainstorming and hashing out strategies at Ford’s headquarters. “We worked ’round the clock,” says Coleman. “There wasn’t room for anyone’s ego to get involved.” They brought their plan to bondholders in April, offering to exchange $1.8 billion in debt for $1.3 billion in equity. The investors agreed.
Like all tough-minded investors, private equity firms are busy looking for ways to profit from rivals’ pain—and even their own. College friends Rodger R. Krouse and Marc J. Leder are among the most aggressive. The two left Lehman Brothers (LEHMQ) in 1995 to forge their own firm, Sun Capital Partners, in Boca Raton, Fla. They had a tough time muscling into the clubby world of private equity, but since 2002 Sun Capital has bought more than 200 small and midsize companies and earned 20% a year. Among its holdings: restaurant chain Friendly Ice Cream and bagel chain Bruegger’s Enterprises. More than 10 of Sun Capital’s companies have filed for Chapter 11, including retailer Big 10 Tires, auto parts supplier Fluid Routing Solutions, and department store Mervyns. But Krouse and Leder, both 47, are capitalizing on the trouble by doling out high-interest, short-term loans to some of its bankruptcy victims. Sun Capital declined to comment.
Few private equity portfolios are as troubled as that of New York’s Apollo Management—but even its list of losers is presenting opportunities. The $45 billion Apollo owns bankrupt retailer Linens ‘n Things, along with struggling casino chain Harrah’s Entertainment and real estate firm Realogy. But Apollo recently raised $15 billion for new investments and plans to use a quarter of that stash to buy distressed debt, including the debt of some of its own holdings.
Junk bonds are familiar territory for Apollo founder Leon Black. The 57-year-old started Apollo in 1990 after leaving Drexel Burnham Lambert, the notorious investment bank that collapsed that year. Black’s interest in his own distressed debt is partly defensive and partly speculative. By buying back bonds aggressively, Black can try to prevent other vultures from picking up the debt and wresting control of his investments. He’s also likely betting that the bond prices will rise in value and that he’ll be able to sell them at a profit later. Apollo declined to comment.
FRENCH CONNECTION
Many private equity firms are taking a sharp pencil to their own books as well. Even as the giants are laying off staff and closing offices, they’re recruiting specialists in fields where they see opportunities. Apollo, for example, added former Morgan Stanley (MS) banker Neil Shear to its new commodities group. In a burst of recent hiring, Blackstone picked up infrastructure specialists Trent Vichie and Michael Dorrell from the New York branch of Australia’s Macquarie, among other recruits.
Carlyle Group, one of the largest and most secretive private equity firms, started preparing for a flood of bank deals last year. The 22-year-old firm, whose ranks have included such well-connected advisers as former President George H.W. Bush and former British Prime Minister John Major, has been expanding aggressively into real estate, venture capital, and other alternative assets—and has bagged some high-profile talent. Last year, Carlyle lured UBS (UBS) investment banker P. Olivier Sarkozy, half brother of the French President. Sarkozy has advised on a number of bank deals, including ABN Amro’s sale of LaSalle Bank to Bank of America (BAC) for $21 billion, part of a breakup of the Dutch bank.
At Carlyle, Sarkozy spends much of his day poring over balance sheets and scouring troubled mortgage portfolios. He has been traversing the U.S. for the past few months, visiting local banks in tiny towns and regional players in urban areas. Now Sarkozy, along with Blackstone, Centerbridge, and W.L. Ross, are in discussions with management at BankUnited (BKUNA), a struggling lender in South Florida. “Private equity will be a prime catalyst in the necessary recapitalization of banks, both here and globally,” says Sarkozy, 39. “The time is ripe.”
BARGAINS IN THE `CANDY STORE’
Perhaps the most combative arena for private equity these days is the bankruptcy courts. Buyout firms are swarming, making bids on busted businesses and in some cases entering into bidding wars. Lynn Tilton, the pugnacious founder of Patriarch Partners, spends much of her time in court fighting over cheap assets. The 49-year-old Tilton, known for her flamboyance in stiletto heels, recently lost a contentious 16-day auction for instant photography pioneer Polaroid to rivals Hilco Consumer Capital and Gordon Brothers Brands. She’s appealing the decision. On Apr. 20 Tilton bought Stila Cosmetics, filling out a portfolio of troubled brand names that include mapmaker Rand McNally. Stila had fallen behind on its debt payments, and lenders took control of the makeup manufacturer. They called Tilton on a Friday night to make a deal. She talked with management on Sunday and by the following weekend owned the company. “I haven’t seen anything like this in 35 years,” Tilton says of the opportunities before her. “This is like a candy store for us.”
The value in Patriarch’s distressed plays isn’t always obvious. Last summer Tilton bought a paper mill in Maine, since renamed Old Town Fuel & Fiber. But she didn’t buy it just to make pulp. A main attraction for Tilton is the mill’s $30 million grant from the Energy Dept. for a research program studying how to make biofuels from wood chips. Tilton wants to produce a biofuel called butanol at the plant, which can be used as aircraft fuel. That would create another potential opportunity, because Patriarch also owns a helicopter maker and an aircraft parts manufacturer.
Few investments look as appealing as those blessed by government dollars. As part of the $787 billion federal stimulus package signed into law in February, the government has earmarked $29 billion to patch crumbling roads, bridges, and schools. Thanks to Uncle Sam, the infrastructure investing trend is picking up. The states’ cash crisis is also sparking interest. “With states facing real economic trouble, you will see further pressure on them to hand over infrastructure to private firms,” says Ben Heap, co-head of infrastructure in UBS’s (UBS) private equity group. There were 127 infrastructure funds in 2008, up from 91 in 2006, according to research firm Probitas Partners.
When Sadek Wahba, investment chief at Morgan Stanley’s (MS) $4 billion infrastructure fund, goes shopping for deals, he follows two main principles. First, invest only in public necessities. Second, make sure the concerns of local citizens are heard—to minimize political problems later. In December, Morgan Stanley and a group of investors paid $1.15 billion for 36,000 parking meters in Chicago. Wahba is converting the old coin-operated devices to electronic pay machines. “These assets are a good hedge against inflation, because you are providing a basic service,” says 43-year-old Wahba.
But the best example of private equity’s shrewdness in the downturn may be its ability to spiff up its sullied image. In Pittsburgh, Robert B. Fay and his brother Pat feared selling their 62-year-old construction business, Joseph B. Fay Co., to private equity, worried that a buyer would dismember the company and lay off staff. The family’s lawyer called New York’s FdG Associates after reading that the $300 million buyout firm had experience working with family-run businesses. In all, the Fay brothers met with six private equity firms. FdG’s team wore casual khakis to its meeting to underscore its anti-Wall Street image, while rivals sent representatives in designer suits. The Fays identified with the FdG team instantly and agreed to sell to the firm in February. Says Bob Fay: “These guys came to us as partners, not vultures.”
with Tara Kalwarski in New York and David Welch in Detroit
BUSINESS EXCHANGE: READ, SAVE, AND ADD CONTENT ON BW’S NEW WEB 2.0 TOPIC NETWORK
Old Stakes, New Value
Amid the ongoing cash crunch, some university endowments, insurers, and other big investors are looking to sell their investments in private equity funds. An Apr. 13 piece on Deal.com reports that Goldman Sachs recently launched a $5.5 billion fund to buy up those stakes on what’s known as the secondary market. “Things may be tougher than usual in the world of private equity but it just means more opportunities for Goldman,” the author writes.
To read the full article, go to http://bx.businessweek.com/private-equity/reference
Carbonara is a senior writer for BusinessWeek. Silver-Greenberg is a reporter for BusinessWeek.com.
08
maio
2009
The Impact of the Chrysler Bankruptcy
The Impact of the Chrysler Bankruptcy
RGE Analyst Team | May 8, 2009
On April 30, Chrysler filed for Chapter 11 Bankruptcy protection from its current creditors. As such, Chrysler will be able to operate as a going concern, while the company renegotiates its debt structure and other obligations. The U.S. government has described Chrysler’s action as a ‘prepackaged surgical bankruptcy’, in which it hopes that the company will be able to exit the bankruptcy process within 30-60 days. If Chrysler achieves this, then it will emerge with a new global partnership with the Italian based Fiat. Instead of cash, Fiat will provide the equivalent of billions of dollars in R&D related investments for a 35% stake in the new Chrysler. However, many experts think that a quick trip into bankruptcy might be unrealistic.
In the administration’s view, cost cuts, implemented by Cerberus and the new management brought in by Bob Nardelli, who cut into Chrysler’s R&D budget and new product development, left Chrysler, the smallest of the Detroit automakers, with a very thin line up of new vehicles. The Obama administration set partnering with Fiat as a precondition for any further government assistance. Nevertheless, Chrysler was unable to avoid the bankruptcy process, because some creditors balked at the terms being offered in the proposed debt to equity swap by the government.
Fiat is vying to get a 35% stake in Chrysler, without paying anything for it. What it brings to the table is billions of dollars in R&D that have positioned it well to produce new cars in the future. Fiat exited the U.S. market decades ago. The marriage between Fiat and Chrysler is based on harsh realities, as evidenced by continuing layoffs in Chrysler’s bloated U.S. and Canadian operations, but it seems to be a symbiotic relationship, aimed to help both car makers survive the new realities of an even more competitive landscape. Moreover it is a reflection of the considerable overcapacities in the global auto sector which may require further consolidation both in several national and international markets.
The short term outcome of Chrysler’s bankruptcy filing may come to determine the path for General Motors, if not the entire U.S. auto industry. If bankruptcy proceedings for Chrysler go as the company and the U.S. government have planned, then Chrysler’s filing may very well turn out to be just a test case before the bankruptcy filing of GM itself. GM has until the end of May to convince the government that it has a viable business plan to restructureoutside of an official bankruptcy filing for Chapter 11 reorganization. If it fails to renegotiate its debt and convince its current creditors to undergo a debt for equity swap, as Chrysler failed to do, then GM will have no option but to file for Chapter 11 protection. GM’s new CEO, Fritz Henderson has vowed to do whatever is reasonably necessary to prevent the automaker from going under including seeking loan packages from U.S., Canadian and European governments (especially Germany). However, GM can no longer afford its extensive European operations and is in the process of looking for bidders.
The significant role the auto sector plays in employment, exports and industrial production have heightened the political importance of responding to their vulnerabilities, which have been exacerbated by the credit crunch, prompting rescue packages including bridge loans, incentives to purchase domestic vehicles and increases in tariffs on imported cars and auto parts. In the face of rising unemployment in other sectors, governments hope to avoid any disorderly bankruptcy proceedings.
Furthermore, the Chrysler-Fiat merger could set off a chain of consolidations within the auto sector which continues to have significant production overcapacities. Even emerging economies are likely to contribute slower auto demand growth in coming years. In Russia, automakers including Toyota have repeatedly shuttered production and domestic automakers are now increasing car loans in order to encourage purchases. Other countries like China also face the near-term challenge of consolidating its many automakers into several companies large enough to take advantage of economies of scale, increasing their share of the domestic market and possibly expand abroad.
Fiat is also trying to position itself to obtain an ownership stake in GM’s European affiliate Opel. The plan, which includes the other GM subsidiaries in Europe – Vauxhall in Britain and Saab in Sweden, would create a new global auto company with annual sales of up to 7 million cars and €80 billion ($106 billion) in revenues, which would secure Fiat a winning position in the post-crisis market. The move however is likely to face political hurdles, as neither the German nor Italian governments would like to deal with the job losses (an estimated 8,000-9,000 jobs) likely from such a merger, particularly not in an election year (Germans vote this fall).
According to press reports, Berlin issued a list of conditions for Fiat, which includes stating where the headquarters would be located, where the taxes would be paid, the number of expected job losses and the future of Opel plants in Germany. GM though has the final say in assessing Fiat’s offer. Yet, the German economic minister suggested that Fiat needs German state credits in lieu of adequate financing, which might increase the German government leverage. However, supporting the formation of a global car maker with the German government’s credit guarantees may enrage other German carmakers such as the VW Group, BMW and Mercedes-Benz.
The pressure on domestic jobs has increased the political importance of responding to the automakers woes in many countries. In February, France raised protectionist fearsafter introducing state aid for the domestic car makers in return for an unwritten pledge to keep jobs and production at home. It posed a test for the EU’s single market rules and triggered an angry response from the Eastern European countries that would be hurt the most by the measure. Other countries like Argentina and Russia have increased restrictions on auto or parts imports in an attempt to support domestic industries. These might actually have the opposite effect; those in Russia hurt the business of used car sellers.
However, some government attempts to stoke auto demand may well erode future demand. So-called ‘cash for clunkers’ deals in which governments provide incentives for consumers to trade in their old cars for new (and often more fuel efficient) ones, have had the desired effect, boosting auto sales in countries like Germany and China for the types of cars targeted. These measures are helping to erode the inventory of manufacturers in a relatively orderly manner, but may be deferring the adjustment process that the automakers face. Moreover, rising unemployment is likely to weigh on consumption especially of large credit-dependent purchases like cars.
The bankruptcy also has significant repercussions on the corporate bond market. Chrysler’s bankruptcy filing was preceded by tough negotiations among creditors and the government to conclude an out of court restructuring in which lenders would receive 29 cents on the dollar in cash in exchange for wiping out about $6.9 billion of Chrysler’s debt. A group of about 20 secured creditors refused to sign off on the deal, arguing that their stake was worth more and demanding that their seniority rights be observed. However, recent empirical evidence shows that as default rates increase, recovery rates are falling fast in this cycle. Moody’s reported that in the past seven months, completed CDS auctions resulted in a recovery rate of 30 cents on the dollar for loans and about 15 cents on the dollar for bonds compared to 85 and 70 cents on the dollar, respectively, for all of 2008. The latest research by Edward Altman yields similar results stressing that distressed exchanges to avoid bankruptcy have surged since 2008 and that they usually yield significantly higher recovery rates to participating bondholders. In fact, S&P warns that due to loose covenants and missing early warning triggers, the losses even for secured creditors in this cycle might turn out to be substantial if a company cannot reorganize and liquidate.
Henry Hu from Texas University points to the ‘empty creditor’ phenomenon to explain why some lenders prefer to hold out and force a bankruptcy seemingly against the company’s and thus their own best interest. In short, creditors with enough credit default swaps may simultaneously have control rights and incentives to cause the debtor firm’s value to fall. And if bankruptcy occurs, the empty creditor may undermine proper reorganization, especially if his interests (or non-interests) are not fully disclosed to the bankruptcy court. See: Distressed Debt Investors Dictate The Terms: How Big An Issue Are ‘Empty Creditors’ With CDS Hedges? Another example is the case of the Kazakh bank BTA. Gillian Tett reports that Morgan Stanley in mid-April called for repayment of a loan thus forcing the already troubled lender into partial default. The fact that just after calling the loan, Morgan Stanley demanded ISDA to initiate a CDS settlement of contracts written on BTA, exposing Morgan Stanley to the ‘empty creditor’ criticism even if many details are missing. Dynamics of this kind make defaults more likely and need to be taken into account when forecasting the severity of the current corporate default cycle.
But are credit markets finally thawing? Indeed, corporate bond issuance has picked up substantially since December especially in the high-yield segment amid tighter spreads since the immediate Lehman aftermath. On a more cautious note, the IMF notes that given shortening credit lines and still tight bank lending standards (confirmed in the April Bank Loan Officer Survey), corporations are taking advantage of this window of opportunity to refinance themselves in the bond market despite substantially higher costs. An additional factor fueling this frontloaded corporate bond activity is the likely future crowding-out by sovereign and government guaranteed debt. While the high-yield segment has returned 17.4% YTD in 2009, the fate of Chrysler and GM shows that the default rate may not yet have reached its peak.
RGE Monitor
01
maio
2009
Lenders Appear To Be Driving Chrysler To Bankruptcy
Lenders Appear To Be Driving Chrysler To Bankruptcy
Joann Muller April
DETROIT -Just hours after President Barack Obama told the nation he was hopeful Chrysler would become viable and that it might be able to avoid bankruptcy, talks between his automotive task force and lenders reportedly broke down, raising the likelihood of a Chapter 11 filing as early as Thursday.
The Wall Street Journal reported that talks broke down after the president’s task force was unable to persuade hedge funds and other lenders to accept a sweetened offer of $2.25 billion in cash in exchange for forgiving $6.9 billion in Chrysler debt. Treasury officials were unavailable for comment.
“As we get down to the wire, there will be much speculation but we will refrain from commenting,” said a Chrysler spokeswoman.
An expedited court process could be a test run of the government’s plan for General Motors, which has until the end of May to try to avoid bankruptcy, industry analysts say.
The plan would be for Chrysler’s best assets to be sold to a new company that would emerge quickly from bankruptcy proceedings, perhaps in a matter of days or weeks. The new Chrysler would be owned 55% by a retiree health care trust fund and 20% initially by Fiat, with the remainder held by the government and creditors. Eventually, if Chrysler met certain performance objectives, Fiat would get 35%. Then, years from now, once the taxpayer loans are paid off, Fiat would be entitled to take a controlling interest.
Such a bankruptcy for Chrysler would test the administration’s theory that a major carmaker could undergo a “quick rinse” in court, shedding unwanted liabilities, and emerge as a smaller but healthier company.
Yet David Cole, president of the Center for Automotive Research, cautions that the complexities of car making doesn’t lend itself to simplistic approaches. “If this industry goes down in a catastrophic collapse, it will be more expensive than a bridge loan, and with the state of the economy it will drive us into a depression,” he said. “The last thing this administration wants is to be known as the 21st-century Herbert Hoover administration. The risk is very, very real.”
The government’s intervention in the auto industry is unprecedented, with many of the rules being made up on the fly. Industry experts are hard-pressed to predict what will happen. “I think there will be a short bankruptcy to see if it works,” said Sean McAlinden, chief economist for the Center for Automotive Research. “If it doesn’t, they’ll need a new plan for GM.”
Although the government is clearly in command of the troubled industry for now, Obama said Wednesday night that he doesn’t want that to last forever. “I don’t think taxpayers should simply attach an umbilical cord between the U.S. Treasury and the auto companies so they are constantly getting subsidies.”
But he does believe it’s his role to push the automakers to make tough decisions and be competitive. “I’m not an auto engineer. I don’t know how to create an affordable, well-designed plug-in hybrid. But I do know if the Japanese can design an affordable plug-in hybrid, then doggone it, the American people ought to be able to do it, too.”
Long term, he thinks Detroit automakers will be very successful. “Those companies that emerge from this crisis, when you see pent-up demand coming back, they’re going to do really well, not just in the United States, but globally. I want to help them get there.”
During a Town Hall meeting near St. Louis earlier Wednesday, Obama addressed the Chrysler situation specifically.
“We don’t know yet whether the deal is going to get done,” he said. “I will tell you that the workers at Chrysler have made enormous sacrifices–enormous sacrifices–to try to keep the company going. One of the key questions now is: Are the bondholders, the lenders, the money people, are they willing to make sacrifices, as well? We don’t know yet, so there’s still a series of negotiations that are taking place.”
But Obama made clear what he hopes will result.
“We’re hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal, but ultimately the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want. And one of the potential advantages of a merger is new technologies where Chrysler starts making fuel-efficient, clean-energy cars that will meet the needs of the future market.”
He also promised that despite the expense to taxpayers, the government would protect health care and pensions for autoworkers, who helped get him elected. “My attitude is we got here not because our workers didn’t do a great job trying to build a great product; it was because management decisions betrayed workers.”
Forbes – April 30, 2009
16
abril
2009
M&A has ‘only just begun´
Bankruptcy-related M&A has ‘only just begun’
By Brooke Masters in London and Julie MacIntosh in New York
Bankruptcy-related mergers and acquisitions have hit their highest level globally since August 2004, and are set to keep rising as more companies are forced into distressed sales, according to Thomson Reuters data and restructuring practitioners.
Thomson Reuters identified 34 announced deals in March alone, and 67 so far this year, where the target company was in bankruptcy or administration proceedings. The vast majority were in the US or Japan – reflecting the earlier onset of the recession in the US and more liberal bankruptcy rules in both countries, which allow companies to continue operating while they reorganise.
Among the highest-profile deals were those of Delphi , the US car parts maker that recently sold its brakes and suspension business to a Chinese buyer, and BearingPoint, the US technology consultancy that sold its government operations to Deloitte.
Practitioners around the world forecast that the number of transactions involving distressed companies must rise further.
“We’ve only just begun,” said Gregory Milmoe, a US restructuring partner at Skadden, the law firm. “Given the dearth of capital and the substantial increase in the number of companies that will be troubled, one would expect the M&A rate to increase dramatically.”
Richard Stables, global co-head of restructuring at Lazard, said: “People cannot borrow as much as they once could, so you’ve got to figure out how to fill the gap . . . That’s why you may think about selling part or even all of the business.”
Monthly totals for bankruptcy M&A peaked at 87 in July 2002 and slumped to seven in May 2007, just before the credit crunch hit. In the last downturn, a flurry of telecoms and technology company failures led to asset sales to strategic buyers as well as private equity buyers.
This time, industrial and retail companies have been the most prominent distressed sellers but private equity buyers have been few because debt has become far more expensive. Insolvencies traditionally peak a year to 18 months after the start of a recession, so more bankruptcy-related sales are forecast to emerge later this year, practitioners said.
Financial Times – Published: April 12 2009 18:47
16
abril
2009
Bankruptcy-Related M&A at Highest Levels Since 2004
Bankruptcy-Related M&A at Highest Levels Since 2004
Posted by Brian Baxter
Citing data compiled by Thomson Reuters, the Financial Times reports that bankruptcy-related M&A deals have hit their highest level globally since August 2004. With the economic downturn forcing more companies into sales of distressed assets, it seems likely the trend will continue.
“We’ve only just begun,” Skadden, Arps, Slate, Meagher & Flomrestructuring cochair J. Gregory Milmoe told the FT. “Given the dearth of capital and the substantial increase in the number of companies that will be troubled, one would expect the M&A rate to increase dramatically.”
A few weeks ago we posted on the rise in section 363 asset sales and liquidations occurring in bankruptcy, citing pending sales byBearingPoint and The Greenbrier Hotel.
“[Section 363s] are a capital markets-driven phenomenon; there’s less DIP financing to stay in the ordinary course of operations and support a standalone [bankruptcy] plan,” Willkie Farr & Gallagher business reorganization chair Marc Abrams told us. “And there are equally reduced levels of exit financing that would permit a company, once it comes up with a stand-alone plan, to emerge from bankruptcy.”
The FT points to the $350 million BearingPoint deal and the decision by bankruptcy auto parts manufacturer Delphi to sell its brakes business to a Chinese company for $100 million as evidence that bankruptcy-related M&A is on the rise.
Thomson Reuters identified 34 such deals in March alone and 67 so far this year. The bulk of those deals were in the U.S. and Japan, the FT reports, because of the length of time both countries have been in recession and more liberal bankruptcy rules that allow companies to operate while they restructure.
According to Thomson Reuters data, monthly totals for bankruptcy-related M&A peaked at 87 such deals in July 2002 and dwindled to a mere seven in May 2007, shortly before the onset of the global recession.
While many of the deals of the last downturn involved telecoms and tech start-ups being acquired by strategic and private equity buyers, this time around, the PE money has remained on the sidelines because debt has become more expensive.
Since insolvencies tend to peak 12 to 18 months after the beginning of a recession, Thomson Reuters data suggests that more bankruptcy-related M&A work will emerge later this year, the FT reports.
April 13, 2009 1:42 PM
The American Lawyer
29
janeiro
2009
Adelphia Communications
John Rigas, the 77 year-old founder of the country’s sixth largest cable television operator, was indicted Sept. 23 with his two sons and two other former executives of Adelphia on charges that included conspiracy, securities fraud and wire fraud. Rigas and his sons were arrested on July 24 in Manhattan. They have been free on $10 million bail each. The earlier criminal complaint charged the three with fraud for allegedly hiding $2.3 billion in liabilities from investors of the now bankrupt company.
Data de publicação: 14/03/2003
Fonte/Autor: Wall Street Journal
