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FRED
07-05-07, 10:09 PM
http://www.itulip.com/images/flipcorp.jpgThanks to iTulip veteran JK for pointing us to the Bloomberg story "LBO Debt Alarms Fidelity, Lehman, TIAA-CREF Managers" below. Apparently, a few fund managers are catching on.

We asked in Most Hedge Funds Suck (http://www.itulip.com/forums/showthread.php?t=733): "Question is, how much more of this abuse can the U.S. economy take? We'd better hope it can take a lot because in 2007, the hedge fund, private equity and housing bubbles are all going to collapse together."

How is a CLO that creates credit for a private equity firm to use to buy an over-priced company which price was set by an investment bank different from a CDO used to back a goofy mortgage that a lender handed out to a buyer of a home which price was set by an appraiser who got a kickback from the lender (http://www.itulip.com/images/mortgagefraud.jpg)? Not much, except that more than $1 trillion in the former has already been closed this year. How many people do all of these over-leveraged companies employ? A million? Ten million? More? We shall see.

Today we hear:
LBO Debt Alarms Fidelity, Lehman, TIAA-CREF Managers (http://www.bloomberg.com/apps/news?pid=20601010&sid=aQeXgDtlzDLE&refer=news)
July 5, 2007 (Bloomberg)

The world's biggest bondholders have had their fill of leveraged buyouts, convinced that increasing mortgage delinquencies will drag down the U.S. economy and drive debt-laden companies into default.

"There are some very scary analogies between high yield and the mortgage market," said Kevin Lorenz, a managing director who oversees $2.5 billion of high-yield assets at TIAA- CREF in New York. "You cannot do fundamental analysis and believe that those are credit-worthy companies."

Leveraged buyouts caused sales of high-risk, high-yield debt to rise 70 percent to a record $1 trillion during the first half of the year, according to data compiled by Bloomberg. Bonds and loans rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service are considered below investment grade.

"Demand has spiraled out of control," said Sethi, who helps oversee $2 billion at Fidelity International, an affiliate of Boston-based Fidelity Investments.

"It's the triumph of liquidity over fundamentals," said Peter Harvey, who oversees $3.8 billion of assets as head of credit at Cazenove Capital Management in London. "The creation of credit funds is unlike anything we've ever seen." We have interviewed a pile of industry people over the past few weeks and are coming away with a very disturbing picture. We are always hoping to be surprised, but haven't been yet, except on the downside.

What we get from interviewing the CDO managers is the observation that the transition from mark-to-model to mark-to-market for the private equity guys is going to be much worse than the transition from mark-to-model to mark-to-market for CLOs.

What we get from interviewing the private equity managers is the conviction that the transition from mark-to-model to mark-to-market for the CDO guys is going to be much worse than the impact on the private equity guys of the transition from market-to-model to market-to-market for CLOs.

We suspect both are correct. To settle this dispute, we'd like to interview the geeks instead of the jocks (http://www.itulip.com/forums/showthread.php?t=383), but access is carefully managed. We talked to the CEO of Challenger Grey & Christmas, John Challenger, who weighed in with the opinion that the collapse of the private equity bubble poses a real threat to the U.S. economy, the first to share our opinion on that.


<object height="350" width="425">
<embed src="http://www.youtube.com/v/hG3o0ikdJgo" type="application/x-shockwave-flash" height="350" width="425"> </object>

iTulip Select (http://www.itulip.com/images/iselect50.jpg) subscribers can hear the whole interview here (http://www.itulip.com/forums/showthread.php?p=11276#post11276).

Also see: Layoff plans off 22% in June, Challenger says (http://www.marketwatch.com/news/story/layoff-plans-fall-22-june/story.aspx?guid=%7B9A54C413%2DC8B6%2D41E8%2DAC45%2 DE823D8DCC79F%7D&siteid=yhoof) (Marketwatch) July 7, 2007

bill
07-05-07, 11:30 PM
As I said before:http://www.itulip.com/forums/showthread.php?p=10460#post10460

The PE groups are no different than the house flipping groups that had their buddy appraisers and lenders. As soon as a asset is purchased it is set up for the flip by re-inflating the asset and flipping the asset taking all created equity profits and leaving the new owner with a load of debt to service. PE profits are made on the flip and on to the next deal they went. We are coming to a point where the current pricing of inflated assets can no longer be inflated as rapidly do to appraisers and credit risk ratings starting to feel the regulation pressure witch is leading to a tightening of liquidity witch is causing the flips to slow down.
I don’t see how these PE flipped corporations with heavy debt service will be able to survive much longer without a restructuring.
Who will eventually come in and mop up this global mess all these little flash in the pan flippers have created? I guess it would be some one with a lot of capital and a global solution to a global financial mess.http://www.itulip.com/forums/showthread.php?p=10775#post10775

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jk
07-06-07, 09:32 AM
As I said before:http://www.itulip.com/forums/showthread.php?p=10460#post10460

The PE groups are no different than the house flipping groups that had their buddy appraisers and lenders. As soon as a asset is purchased it is set up for the flip by re-inflating the asset and flipping the asset taking all created equity profits and leaving the new owner with a load of debt to service. PE profits are made on the flip and on to the next deal they went. We are coming to a point where the current pricing of inflated assets can no longer be inflated as rapidly do to appraisers and credit risk ratings starting to feel the regulation pressure witch is leading to a tightening of liquidity witch is causing the flips to slow down.
I don’t see how these PE flipped corporations with heavy debt service will be able to survive much longer without a restructuring.
Who will eventually come in and mop up this global mess all these little flash in the pan flippers have created? I guess it would be some one with a lot of capital and a global solution to a global financial mess.http://www.itulip.com/forums/showthread.php?p=10775#post10775

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i have to laugh at the thought of all the gov't investment funds buying assets cheap when the pe/hedge fund/lbo bubble goes. it reminds me of greenspan's ludicrous stated reason for supporting the bush tax cuts, i.e. that without the tax cuts, the surpluses were going to get so big that the u.s. gov't would have to start buying private assets.

problem solved!! it will be the CHINESE gov't buying up our private assets!

Darin
07-06-07, 03:23 PM
I wish the graphic wasn't so funny. We laugh because we can relate to the concepts.

"Defarture Films" - lots of air deflating that doesn't smell good. I caught that. :o

zoog
07-06-07, 10:18 PM
Who will eventually come in and mop up this global mess all these little flash in the pan flippers have created? I guess it would be some one with a lot of capital and a global solution to a global financial mess.http://www.itulip.com/forums/showthread.php?p=10775#post10775
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Before I clicked your link to other post, I assumed you meant me, the American taxpayer.:mad:

jeffolie
07-07-07, 02:29 PM
The margin requirements by banks to loan to hedge funds and PE on BBB is now 50 to 100 percent meaning virtually no leverage. So who is going to buy this garbage without leverage? The liquidity is essentially disappearing.

bill
07-09-07, 10:52 AM
The Blame game begins.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aLoHVPAWvNLs&refer=home



The ratings company's criticism follows attacks by unions and politicians who have mauled the private equity industry for asset stripping and using too much debt to fund their takeovers. In the U.S., Congress is weighing a law that would more than double taxes for buyout firms that go public.


http://www.ft.com/cms/s/8890d07a-2d7c-11dc-939b-0000779fd2ac.html


Rating agencies have been criticised by investors for being slow in spotting credit markets problems such as the crisis in the subprime sector.
In its report, to be issued on Monday, Moody’s takes issue with the argument that private ownership frees companies from the short-term pressures of the equity markets, enabling them to invest and plan for the long term.
The claim, often repeated by buy-out executives, is central to the industry’s efforts to prove its activities benefit portfolio companies and the economy as a whole.
Moody’s report says: “The current environment does not suggest that private equity firms are investing over a longer-term horizon than do public companies despite not being driven by the pressure to publicly report quarterly earnings.”
The agency says buy-out funds’ tendency to increase a portfolio group’s indebtedness to pay themselves large dividends runs counter to their claim of being long-term investors. The report cites as examples of this trend the dividend received by Thomas H. Lee, Bain Capital and Providence Equity following their takeover of Warner Music in 2004 and the one paid to Blackstone after the purchase of Celanese.



Anyone have a copy of the report?

bill
07-23-07, 12:57 PM
Moody’s on the move doing some ratings for their buddies over at the Carlyle Group. http://www.ameinfo.com/126219.html

Consisting of a USD557 million term loan due 2014, a USD100 million revolver due 2013 and a USD280 million asset sale facility due 2009.

Also, Moody's assigned a Caa2 rating to the company's proposed $325 million senior unsecured notes due 2015 and a B3 Corporate Family Rating. The rating outlook is stable.

The purpose of the proposed notes and credit facilities is to partially fund the acquisition of the company by Dubai Aerospace Enterprises LTD ('DAE').

In April of 2007, Dubai Aerospace Enterprises entered into an Agreement and Plan of Merger to acquire Standard Aero Holdings, Inc. and Piedmont/Hawthorne Holdings, Inc. (d/b/a Landmark Aviation) from the Carlyle Group for approximately $1.9 billion in cash.


Lets do the whole country as well:http://www.ameinfo.com/126121.html

In an associated action, the country ceiling for foreign currency bank deposits was also raised to Aa2. The country ceilings for foreign and local currency bonds remain at Aa2. The short-term rating also remains unchanged at Prime-1 (P-1). The outlooks on all ratings are stable.

The primary factor driving the upgrade was the ongoing strengthening of the government's balance sheet.

"Persistently high oil prices have allowed the government to continue to accumulate significant foreign assets at a rapid rate,"


said Tristan Cooper, Moody's Vice-President and Senior Analyst.



Should be a good flip for Carlyle they purchased Standard Aero back in 04 and I’m not sure what they paid for Landmark. http://www.standardaero.com/news/2004/carlyle_purchase.asp

Carlyle’s purchase of Standard Aero is valued at approximately $670 million.

Flip to who, DAE http://www.dubaiaerospace.com/portal/CORPORATEINFORMATION/CompanyProfile/tabid/66/Default.aspx

DAE’s shareholders include EMAAR, ISTITHMAR, Dubai Airport Free Zone Authority (DAFZA), Dubai International Capital, Dubai International Financial Centre, the Government of Dubai and AMLAK Finance.

Who controls some of these above companies? http://www.arabdecision.org/show_cv_3_12_5_1_5_577719601.htm

It's sovereign UAE fund backed company http://www.itulip.com/forums/showthread.php?p=10775#post10775
looking for world wide assets.

Who did they get to run such a prestige comapany such as DAE, a big name with a USA profile? http://www.itulip.com/forums/showthread.php?p=10161#post10161

http://www.dubaiaerospace.com/portal/dae_press/press/dae_ahead.html

Johnson, himself formerly Chairman and CEO of Honeywell Aerospace, has recruited a highly experienced management team at DAE.
and many more surrounding him.

Next purchase:http://www.ft.com/cms/s/937226ec-389e-11dc-bca9-0000779fd2ac.html

Dubai is accelerating its efforts to establish a global presence in the aerospace and aviation industry with a bid to acquire a majority stake in Auckland airport, the largest airport in New Zealand.
Dubai Aerospace Enterprise said on Monday that it had backing from the board of Auckland International Airport (http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp?FTSite=FTCOM&q=AIA&searchtype&expanded=&countrycode=nz&s2=nz&symb=AIA&company=NEW) to acquire a stake of between 51 and 60 per cent and to become a strategic partner.



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bill
12-10-07, 11:00 AM
As I said before:http://www.itulip.com/forums/showthread.php?p=10460#post10460

The PE groups are no different than the house flipping groups that had their buddy appraisers and lenders. As soon as a asset is purchased it is set up for the flip by re-inflating the asset and flipping the asset taking all created equity profits and leaving the new owner with a load of debt to service. PE profits are made on the flip and on to the next deal they went. We are coming to a point where the current pricing of inflated assets can no longer be inflated as rapidly do to appraisers and credit risk ratings starting to feel the regulation pressure witch is leading to a tightening of liquidity witch is causing the flips to slow down.
I don’t see how these PE flipped corporations with heavy debt service will be able to survive much longer without a restructuring.
Who will eventually come in and mop up this global mess all these little flash in the pan flippers have created? I guess it would be some one with a lot of capital and a global solution to a global financial mess.http://www.itulip.com/forums/showthread.php?p=10775#post10775

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Here they come.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.VoZASb15CE&refer=home


``China at this stage needs to be looking to opportunities provided by the weakening U.S. dollar,'' Ha Jiming, chief economist in Beijing at China International Capital Corp., the nation's largest investment bank, said in an interview last week. ``Very recently the government is becoming more interested in channeling money out of the country.''
The Ministry of Commerce said last week it will encourage businesses to buy American assets. Twenty insurers were granted licenses to invest overseas. China Investment Corp., the nation's $200 billion sovereign wealth fund, said it will be a ``stabilizing force'' in markets rocked by credit losses, signaling it may invest in American banks.

bill
12-11-07, 10:27 AM
Here they come.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.VoZASb15CE&refer=home

......and they just keep coming to the rescue.


http://online.wsj.com/article/SB119733781586820275.html?mod=googlenews_wsj

....government investment arm of Singapore and an unnamed Middle Eastern investor.
UBS's decision to sell as much as 12.4% of the company to Singapore and the Middle Eastern investor for $11.5 billion is the latest in a string of deals in which state funds or banks in Asia and the Middle East have taken stakes in Western financial firms. Government "sovereign-wealth funds" have invested about $46.8 billion in European and U.S. financial firms since January 2006, according to Morgan Stanley estimates. The UBS deal comes just a few weeks after Citigroup (http://online.wsj.com/quotes/main.html?type=djn&symbol=c) Inc., also hobbled by subprime problems, received a $7.5 billion investment from the Abu Dhabi Investment Authority, which will ultimately own a 4.9% Citigroup stake.

http://s.wsj.net/public/resources/images/P1-AJ834_UBS_20071210210144.gif

c1ue
12-12-07, 03:19 PM
Time will tell if this is a money making opportunity for the SWFs or just Japanese buying Manhattan skyscrapers...

bill
12-19-07, 09:22 AM
......and they just keep coming to the rescue.




9.9%,,,,12%,,,,,10%,,,,,7%...11%,,,,,when in need, SWF's
at this rate the chinese may end up with 49%

http://dealbook.blogs.nytimes.com/2007/12/19/morgan-stanley-to-sell-stake-to-china-amid-4th-quarter-loss/?hp
December 19, 2007
Morgan Stanley posted a fourth-quarter loss, its first-ever quarterly loss, after taking an additional $5.7 billion write-down related to subprime mortgages. The investment bank said it would sell a $5 billion stake to the China Investment Corporation, that country’s sovereign wealth fund, to shore up its capital.

metalman
12-19-07, 10:15 AM
9.9%,,,,12%,,,,,10%,,,,,7%...11%,,,,,when in need, SWF's
at this rate the chinese may end up with 49%

http://dealbook.blogs.nytimes.com/2007/12/19/morgan-stanley-to-sell-stake-to-china-amid-4th-quarter-loss/?hp
December 19, 2007
Morgan Stanley posted a fourth-quarter loss, its first-ever quarterly loss, after taking an additional $5.7 billion write-down related to subprime mortgages. The investment bank said it would sell a $5 billion stake to the China Investment Corporation, that country’s sovereign wealth fund, to shore up its capital.

it's just like this! (http://www.itulip.com/forums/showthread.php?t=1569)but a lot sooner. imagine how it's gonna be in 2010.

better get this next bubble show in alt energy on the friggin' road. oh, here it is...
US Congress raises auto fuel standards, boosts biofuels (http://afp.google.com/article/ALeqM5gMsD4gYoaB3HVh8J-2otNjIyBvhA)


how'd the dems get it through?

"Bush and Republican lawmakers agreed to support the bill after Democrats gave up a provision that would have ended the oil industry's 13.5 billion dollar tax breaks."

what the hell. we'll just borrow another $13.5 billion to cover the tax breaks. what's the big deal tagging another few billion onto an already many trillion debt?

"AAAAH, JUST PUT IT ON MY TAB!" says the big shot just before he went completely broke.

GRG55
12-19-07, 05:01 PM
it's just like this! (http://www.itulip.com/forums/showthread.php?t=1569)but a lot sooner. imagine how it's gonna be in 2010.

better get this next bubble show in alt energy on the friggin' road. oh, here it is...
US Congress raises auto fuel standards, boosts biofuels (http://afp.google.com/article/ALeqM5gMsD4gYoaB3HVh8J-2otNjIyBvhA)


how'd the dems get it through?

"Bush and Republican lawmakers agreed to support the bill after Democrats gave up a provision that would have ended the oil industry's 13.5 billion dollar tax breaks."

what the hell. we'll just borrow another $13.5 billion to cover the tax breaks. what's the big deal tagging another few billion onto an already many trillion debt?

"AAAAH, JUST PUT IT ON MY TAB!" says the big shot just before he went completely broke.

Once you have a "social safety net" in place it's always difficult to wean the recipients off it...even when they are corporate welfare bums.

Have you had a look at all the new tax credits and subsidies in the bill for alt energy? Let's see, bankers, brokers, "homeowners", corn farmers, ehtnaol makers...is there anybody left not on the Federal dole?

c1ue
12-19-07, 05:09 PM
Have you had a look at all the new tax credits and subsidies in the bill for alt energy? Let's see, bankers, brokers, "homeowners", corn farmers, ehtnaol makers...is there anybody left not on the Federal dole?

Me, and I think you.

Clearly we're doing something wrong...

bill
03-13-08, 09:33 AM
As I said before:http://www.itulip.com/forums/showthread.php?p=10460#post10460

The PE groups are no different than the house flipping groups that had their buddy appraisers and lenders. As soon as a asset is purchased it is set up for the flip by re-inflating the asset and flipping the asset taking all created equity profits and leaving the new owner with a load of debt to service. PE profits are made on the flip and on to the next deal they went. We are coming to a point where the current pricing of inflated assets can no longer be inflated as rapidly do to appraisers and credit risk ratings starting to feel the regulation pressure witch is leading to a tightening of liquidity witch is causing the flips to slow down.
I don’t see how these PE flipped corporations with heavy debt service will be able to survive much longer without a restructuring.
Who will eventually come in and mop up this global mess all these little flash in the pan flippers have created? I guess it would be some one with a lot of capital and a global solution to a global financial mess.http://www.itulip.com/forums/showthread.php?p=10775#post10775

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Liquidate and restructure

http://www.bloomberg.com/apps/news?pid=20601087&sid=av2FTiDdc1fo&refer=home
March 13 (Bloomberg)
The fund said in a statement that it defaulted on about $16.6 billion of debt as of yesterday. Lenders will ``promptly'' take over all of its remaining assets after it failed to reach an agreement with lenders, Carlyle Capital said. Any remaining debt is expected to go into default ``soon'', the fund added.

Slimprofits
03-13-08, 12:50 PM
Anyone have a copy of the report?

Yes: Rating Private Equity Transactions (.PDF) (http://www.collectif-lbo.org/international/Moodys_on_private_equity_07_2007.pdf)