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Blackstone Chief Calls Credit Recovery "Eye of the Hurricane"

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Blackstone President Tony James said it may be premature to label the credit crisis over, although he did point to improving conditions in the market for LBO-related debt.

However, one also has to wonder whether this call is to lower expectations for Blackstone’s performance, given the firm’s dreadful first quarter results. Oddly, Bloomberg reports the the alternative investment shop lost $66.5 million in the first quarter, and cited a company statement. Yet the 8-K filing today, which includes a detailed discussion of first quarter results, says:

Economic Net Income for the First Quarter 2008 was a Loss of $(93.6) million reflecting a reduction in carrying value of investments.

GAAP Net Loss of $(246.7) million reflecting transaction related (including non-cash charges of $940.0 million) costs of $952.5 million offset by Non-Controlling Interests of $799.4 million.

Looking through the statement, nowhere do a see either a $66.5 million figure for losses, nor do I see the 12 cents a share deficit that the article cited (the release shows (page 6 and elsewhere):

Net Loss Per Common Unit, Basic and Diluted $ (0.97 )

What gives?
From Bloomberg:

Blackstone Group LP President Tony James said banks are mistaken if they think credit markets have begun a sustained recovery.

“It’s not clear to me if it’s a permanent upswing as I think many of the banks are saying or the eye of the hurricane,” James told reporters on a conference call today.

High-yield, high-risk loan prices have climbed from a low of 86.3 cents on the dollar in February to 92.42 cents after banks whittled down a backlog of buyout debt to less than $100 billion from more than $300 billion last year, James said. Banks still must find a way to sell loans and bonds backing the takeovers of telephone company BCE Inc. and Clear Channel Communications Inc.

Private equity firms Bain Capital LLC and Thomas H. Lee Partners LP, which are buying Clear Channel, had sued Citigroup Inc. and five other banks for trying to back out of financing the deal. San Antonio-based Clear Channel, the largest U.S. radio broadcaster, said this week it settled the legal fight by agreeing to a reduced buyout price of $17.9 billion, 8.2 percent less than the Boston-based buyout firms agreed to pay last year.

“The Clear Channel deal moving forward was a blow to the banks,” James said on the call, noting credit prices have moved down two or three points since the legal fight ended. “The next big event will be BCE, which is even bigger than Clear Channel.”…

Banks are willing to lend for acquisitions, though “I would not call it aggressive but they are open for business,” James said. “It’s got materially better,” he said.

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2 comments

  1. S

    FT has a good post on the banks abusing the ECB facility. I recall yu had a post with an interview with a former banker who called the LEH wrap that was meant to depsoit CMBS (?) at the Fed. LEH claimed it was clever and I believe you quoted someone saying it was pretrty sad if that is what passes for clever these days. To cap it off the WSJ is reporting the FEds are poking thier noses around Libor. Here we go again. Fed funds has outlived its useful life so now go directly to the traders and seek manipulation this way. When does it end. I’d be interested in what the impications are for social security, retirement are if the stock market entered a protracted period of flat to down returns..unfathomable today but not historically. Couple that with some survey today that reported the average balance forretirment is something like 60K. Mission control, we have a problem.

  2. Richard Kline

    Let’s see: the market for LBO deals is alleged to have improved because . . . an underwriting syndicate led by Citi were litigated into placing a moderately downprice deal still at a loss for themselves. That’s an ‘improvement’ in a world where losing less means winning. Such ‘improvements’ can continue, one supposes, until there’s nothing left to lose or something to gain. I would bet on the former if I was putting money in this game.

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