Wednesday, November 08, 2006

leverage buy out´s / lbo´s / private equity!

vivendi takeoverbid for 40 b €. no wonder that bondholders get worried......blackstone has collectet 15.6 b$ in june for their latest fund. 50% of this money is already investet!!! with over 200% levergare this is almost 10 b$. in the past it tokk the fund 4 years to screen the markets and find attractive tarkets. now it is the first time ever the funds reopened so that the investores (pension funds etc) can pump 5 b$ more in the fund. kkkr isn´t closing their latest fund at all. when this is not crazy......

this whole topic is very importend . as long as these players are fundet with cash and more importend with massive leverage the markets will/can go gaga for a longer time than some expecting. lets hope that more and more companies will put this kind of "poison" put on their debt/bonds.

vivendi übernahmeangeot über 40 mrd €. kein wunder das da einige anleihebesitzer nervös werden. blackstone hat in seinem letzten fonds im juni satte 15,6 mrd$ eingesammelt. 50% davon sind jetzt bereits investiert. mit einem hebel von über 200% sind das fats 10 mrd$ die in übernahmen gepumpt worden sind. bisher hat die platzierung eines kleineren fonds fast 4 jahre in anspruch genommen. so lange brauchte man um günstige und damit rentierliche anlagen zu finden. jetzt ist es zum ersten mal überhaupt dazzu gekommen das ein fonds wieder geöffnet worden ist damit weiter 5 mrd $ nachgeschossen werden durften. kkkr hat den letzten überhaupt nicht geschlossen. wenn das nicht nach übertreibung/überhitzung riecht.......

dieser punkt ist extrem wichtig. je länger diese spieler mit kohle überschüttet werden und billige finanzierung mit einme immer höheren hebel bekommen desto länger spielen die märkte verrückt. man kann nur hoffen das immer mehr firmen diese giftpille in ihren anleihen und kreditbestimmungen einsetzen.

i´m sure that when the credit market will dry up and some of the highly leveraged companies that have been taken over from private equity have problem the ywill invent something like this.......

ich bin mir sicher das wenn irgendwann die übernommenen firmen dank der hohen schulden in schwierigkeiten kommen sollten wird was neues an finanzinnovation geschaffen .........

more on private equity!

http://immobilienblasen.blogspot.com/2006/10/private-equity-excess-business-week.html
http://immobilienblasen.blogspot.com/2006/10/dangerexplosive-loans-another-credit.html
http://immobilienblasen.blogspot.com/2006/09/shadows-of-debt-economist.html
http://immobilienblasen.blogspot.com/2006/11/singapore-singapur-private-equity.html
http://immobilienblasen.blogspot.com/2006/08/rekordramschanleihe.html (only german)
http://immobilienblasen.blogspot.com/2006/09/private-equity-mania-madness.html (german)

Pimco, Bond Buyers Seek Protection From Kravis, LBOs http://tinyurl.com/yde3uj

Nov. 7 (Bloomberg) -- The world's biggest bondholders are determined to make an example of Henry Kravis.

Pacific Investment Management Co. and Advantus Capital Management, frustrated by the sudden losses caused by leveraged buyouts, are forcing companies to guarantee immediate payment of principal whenever the borrower is acquired by Kohlberg Kravis Roberts & Co., Blackstone Group LP or any of the dozens of LBO firms that have ravaged the corporate bond market.


While this year's five biggest LBOs afflicted bondholders with about $2 billion of losses, relief may be in sight,.... Owens Corning Inc., the maker of pink insulation for homes, and Realogy Corp., the owner of the Coldwell Banker and Century 21 real estate franchises, are among the more than a dozen companies since August that give investors protection from LBOs, which typically increase debt loads and lower credit ratings.

``The risk of re-leveraging is real and investors are trying to protect themselves,''....... ``This is something that's going to be with us for a while.''

Owens Corning, based in Toledo, Ohio, sold $1.2 billion of 10-year notes and 30-year debentures on Oct. 26, with a pledge to pay investors 101 cents on the dollar should the company lose its investment-grade rating in a takeover. ....

Biggest Deal Ever
Any buyer of the company would have to comply with that agreement, known as a ``poison put.'' Private equity firms splurged on a record $465 billion of deals this year,

KKR, Blackstone, Washington-based Carlyle Group, Fort Worth, Texas-based Texas Pacific Group and the rest of the buyout industry have borrowed $166 billion in loans and bonds to finance acquisitions in 2006, leaving 10 targets with lower credit ratings. The debt of companies owned by buyout firms totals 5.4 times their cash flow, the most ever, according to S&P.

HCA Inc.'s $1 billion of 6.5 percent notes due in 2016 have tumbled 13 percent since June, the month before a group led by KKR, Boston-based Bain Capital LLC and New York-based Merrill Lynch & Co. said they would pay $33 billion to acquire the Nashville, Tennessee-based hospital operator.

Decline in Bonds
HCA's debt dropped while the price of securities with the same rating gained on average 3 percent in the same period
, .... Below investment- grade companies pay an average of 3.13 percentage points more in yield than Treasuries, compared with less than 1 percentage point for investment-grade bonds, Merrill Lynch data show.

S&P last month cut its rating on HCA's senior unsecured notes five levels to B- from BB+ because the takeover will be financed with about $23 billion of debt.

Bondholders consider themselves lucky if they manage to avoid securities of companies that get purchased by LBO firms, which typically borrow to pay for about two-thirds of any acquisition. ...

Getting Deals Done
Offering provisions that protect against LBOs may enable some companies to sell bonds they otherwise couldn't,

``If you're in the market doing a deal and your biggest competitor announces an LBO the same day, you're probably going to have to include protection language to get the deal done,'' said Bamford. He said that for other companies it could help save as much as 20 basis points in yield, or 0.2 percentage point.

Before August, just one bond sale for an investment grade- rating contained a such a poison put: a $250 million offering of 5.625 percent notes due in 2015 by Laboratory Corp. of America Holdings,

Increasing Demand
Owens Corning has several traits that are attractive to buyout firms, including a low debt burden, ``significant'' cash flow and an expected investment-grade rating of Baa3, ...

Owens Corning sold $650 million of 6.5 percent notes due in 2016 and $550 million of 7 percent bonds maturing in 2036 to refinance loans. ....

In a typical acquisition, leveraged buyout firms assume the target's existing debt. Because of the poison put, buyout firms seeking to acquire Owens Corning would have to come up with an extra $1.21 billion upfront to pay off the bonds.

``Adding that language to investment-grade names, especially names that have appeared as potential LBO candidates, has certainly increased demand for those issuers,'' ........ ``From a private equity perspective, it could make it more costly.''

Step-Up Coupon
Realogy, the largest residential real estate broker in the U.S., was spun off from Cendant Corp. in July and was a ``prime LBO candidate'' at the time of its bond offering, .....

The Parsippany, New Jersey-based company sold $1.2 billion of bonds in three parts: $500 million of 6.5 percent debentures due in 2016; $450 million of 6.15 percent notes maturing in 2011 and $250 million of three-year securities that pay an interest rate that floats 70 basis points over the London interbank offered rate, a lending benchmark.

Realogy bond investors can sell the debt back at 100 cents on the dollar, if it's taken over and its ratings fall to junk. The securities also contain a step-up coupon, where its interest payments increase by a quarter of a percentage point for each ratings downgrade from Moody's or S&P.

``It's not a generous amount of compensation but it's a relatively benign economic environment,'' said Thomas Houghton, who bought the Realogy bonds for the $2 billion he manages at St. Paul, Minnesota-based Advantus. ``We don't see credit quality falling off a cliff.'' (in the case of real estate relatet realogy i´m not si sure..../wenn es um einen immobiliennahen titel in den sua geht bin ich mir da nicht so sicher...)

Unusual Circumstances
Realogy's bonds are rated Baa2 by Moody's and BBB by S&P. Both ratings companies have ``negative'' outlooks because of a weakening real estate market.

Investment-grade companies haven't been forced to give bondholders much protection in part because defaults fell to a record low of 0.89 percent in September, from an average of 4.61 percent the past 24 years, according to data compiled by S&P.

``Over the long-term, there have been very few times when covenants have been a focus in the investment-grade market,'' said Bamford at Barclays. ``You have to go back to the late '80s and early '90s, post-RJR Nabisco, to find a period when people were this concerned.''

In 1989, New York-based KKR took over RJR Nabisco Inc. for $31.3 billion in what was the biggest buyout until HCA's deal.

Credit Quality
Masco Corp., the maker of Delta faucets and Behr paint, sold $1 billion of 10-year debt on Sept. 28, a week after the Taylor, Michigan-based company lowered its forecast for 2006 profits as a cooling housing market hurt demand for building products.

Investors were granted the right to sell the bonds back to Masco for 101 cents on the dollar if Masco's ownership changes and results in below investment-grade ratings. Its debt is rated Baa1 by Moody's and BBB+ by S&P. ´....

Joy Global Inc., a maker of coal-mining equipment, sold $400 million of notes today to refinance debt and repurchase stock, according to S&P. The Milwaukee-based company's debt is expected to be rated Baa3 by Moody's and BBB- by S&P and contains a poison put at 101 cents on the dollar,

``Companies are now re-leveraging and that re-leveraging of corporate America is going to be happening for the next several years,'' Pimco's Kiesel said. ``You want to be going up in credit quality and staying high in credit quality.''



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