Category Archives: Private equity

The Kanjorski “We’re Tough on TBTF” Headfake

Dear God, if you read the media, you’d really think the Congressional huffing and puffing at the banking industry was going to solve the “too big to fail” problem, or even make much of a difference. Folks, I hate to tell you, these remedies fall so far short of what it would take as to […]

Securitization Drought Exposes Policy Bind, Threatens Recovery

The New York Times has a good update on the progress, or more accurately, lack thereof, in the efforts to return to normalcy in the credit markets. The story highlights the fact that the securitization markets, to the extent they are operating, are heavily dependent on government intervention and it does not appear likely that […]

Quelle Surprise! New York Times Fails to Call Private Equity Looting by Its Proper Name

The New York Times tonight features a generally very good piece, “Buyout Firms Profited as a Company’s Debt Soared,” by Julie Creswell that falls short in one important respect: it fails to call a prevalent and destructive practice of private equity firms by its proper name. PE firms in the risk-blind environment preceding the credit […]

Taleb Foresees Private Equity Firm Failures If Stock Market Falls

Nassim Nicholas Taleb of Black Swan fame predicts that a stock market decline of 20% would take down a lot of private equity firms along with it. Note that Nouriel Roubini predicted a fall of that level when stocks were a tad lower than today. The grim view is confirmed by a BCG study that […]

Chrysler End Game Nigh? Talks on With Renault and Magna

We’ve read off and on speculation that Chrysler might not make it, even assuming a less punitive attitude towards carmakers under the Obama regime. It’s hard to justify government subsidies when a wealthy owner, Cerberus, is refusing to open its checkbook. And Chrysler’s number three status makes it the least problematic to shrink or liqidate. […]

Private Equity Firms Expected to Show 20-30% Losses for 2008

OK, you gotta help me. Private equity is basically levered equity. Yes, the claim to add value in various ways, but many academic studies question that theory. The big source of profits is leverage and financial engineering. Neither of those approaches were spectacularly successful in any sector I can think of in 2008. In addition, […]

Scarcity of Debtor-in-Possession Financing Forcing Earlier Bankruptcy Filings

In more normal times, when a company faces the risk of bankruptcy but believes it has a viable business, it files for Chapter 11 and works out a deal with its various creditors. To keep functioning (and paying its lawyers) while the court proceedings are in motion, large companies have resorted to debtor-in-possession financing. The […]

VC Investors Defaulting on Capital Calls; PE Investors Just Say No

Yet another credit crunch casualty: venture capital firms, and potentially, their portfolio companies. The Wall Street Journal reports that VCs are seeing an increasing number of rebuffs, some borne of necessity, when they hit up their limited partners for dough (reader note: investors in private equity and venture capital funds do not remit the full […]

Harvard, Other Big Endowments Selling Private Equity Stakes at Big Losses

A year ago, major endowments, like Yale, Harvard, and Princeton were seen as the ne plus ultra of sophisticated private investors, regularly posting 20%+ annual returns. Now they are dumping big chunks of their private equity holdings at distressed prices. What gives? The reason this is odd is that the last thing you want to […]

Junk Bond Yields Up Sharply

We’ve noted from time to time that one of the many reasons this downturn will prove to be exceptionally bad is not just that corporate defaults are likely to equal, if not exceed, past post-war peaks. Two new factors are at work that will hurt junk bond holders. First, many of the recent leveraged buyout […]

Surprisingly Superficial New York Times Article on Troubled Private Equity Deals

A story by Andrew Ross Sorkin and Michael de la Merced, “Debt Linked to Huge Buyouts Is Tightening the Economic Vise,” covers the fact that private equity deals, which as a matter of course feature high leverage, are starting to hit the wall as the economy sours. This is hardly surprising; it’s happened in past […]

Loan Market Suffering Sharp Writedowns

While all eyes have been fixed on the interbank market, and the plunge in the Baltic Dry Index has also garnered some attention, the sudden decay in the loan market (meaning for the most part leveraged loans, the sort used to finance LBOs) has gotten far less commentary. Yet this will wreak havoc on bank […]

AIG Asset Sales Going Slowly

More cheery news on the credit crunch front. Readers may recall that AIG entered into what was initially an $85 billion and was later increased by $38 billion with no further strings attached. The terms of the initial loan are pretty punitive, with the government loan having a two year term, a high coupon, and […]

Price on LBO Loans Falling Due to Pressure From Iceland Liquidations

Banks stuck with unsold inventory of LBO loans have maintained a fair degree of market discipline, attempting to offload the paper at favorable prices and engaging in financing the sales rather than taking bigger haircuts so as to avoid further writedowns of still-unsold paper. The sale of LBO paper held by Iceland’s failed banks and […]

Troubled LBO Loans Nearly Triple

The other shoe, as in real economy symptoms of the credit crunch, are starting to show up. One that was widely anticipated was rising default rates in private equity loans. This last cycle was particularly overheated, with not only the predictable peak-of-cycle high prices, which therefore implies high debt levels to make the private equity […]