Archive for May 2006

Deal of The Day: Kinder Morgan and “Highly Confident”

KinderMorgan-Dome1.jpgThe buy-out of pipeline giant Kinder Morgan announced today includes a massive amount of debt. Fourteen and a half billion according to the buyer’s press release. That number includes both the refinancing of existing debt and new debt being taken on by the company to pay the purchase price.
So how do the Kinder Morgan management team intend to rack up that much borrowed money? Well, first of all, they don’t intend to borrow anything. In deals like this, the company itself borrows the money to support the acquisition by the management and the collateral will be the assets of the company. It’s like financing your new car, except that instead of you promising to pay back the loan, the car makes the promise. It’s Herbie the Lovebug financing Lindsay Lohan’s purchase of the car.
The meaning of Goldman’s “Highly Confident” letter after the jump.

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Josh Bolten: Hank Paulson’s New Boss?

boltenbiker.jpgAt least according to former White House staffer Jonah Goldberg John Podhoretz on National Review’s blog “The Corner.”

Do you wonder where the White House got the idea to offer Henry Paulson of Goldman Sachs the job of treasury secretary? Well, White House chief of staff Josh Bolten used to work at Goldman Sachs. Even though, as a matter of statute, the secretary of the treasury does not work for the White House chief of staff, basically as a matter of practice the chief of staff is his supervisor…Interesting psychological development for both men….

That Harley in the picture with Bolten is not, of course, a hybrid.

It’s Fun to Be Your Boss’s Boss
[The Corner]

Bye, Bye, Hank

One of our commenters mentions that Hank Paulson left a “sappy voicemail” to GS employees this morning. Anyone got a transcript for us? Send to TIPS at

Blankfein to head Goldman?

With Hank Paulson gone to the Treasury who will be taking up the helm at the goodship Goldman? The general consensus seems to be that the next cheif executive will be Lloyd Blankfein, a veteran of Goldman’s trading side and current the bank’s president and chief operating officer.
According to a recent Fortune magazine profile, this will be the first time the new Goldman CEO is chosen by the Board of Directors rather than the management committee.
Rising Star: Lloyd Blankfein, Goldman Sachs

  • 30 May 2006 at 10:10 AM
  • KKR

KKR Offering Memo: Fees, Fees, and More Fees

Going Private revists the KKR offering memo.

Typically, private equity funds have provisions to “claw-back” fees paid to general partners of the fund in the event the fund closes with a net-loss. Not so here. To wit:
“Distributions that are made to the general partners of a KKR private equity fund pursuant to a carried interest in the returns generated by the fund’s investment generally are subject to reimbursement in the event that the fund is in a net loss position upon the termination of the fund. Distributions that are payable to KKR’s affiliates in connection with our co-investments and opportunistic investments will not be subject to similar reimbursement, although such distributions will take into account prior realized and unrealized losses.”
In other words, KKR PEI could be a total bust except for three big LBOs that KKR Proper was only able to complete because of the additional funds available from this public entity. Those LBOs would pay 20% carries to KKR Proper, but the rest of KKR PEI’s investments could tank and drop the fund to below the initial offering price. Despite this, KKR Proper keeps the LBO gains, and keeps the management fees it has packed in over the last many years.

You can read the whole KKR Prospectus here.
They’re KKRrrreat! (Part II)

Live Blogging the New Treasury Secretary

paulson.jpg8:15. Rumors everywhere that Treasury Secretary John Snow is stepping down. What to make of Snow? Kevin Hassett sure likes him. Who will replace him? Will it be former Commerce Secretary Don Evans? Goldman Sach’s Hank Paulson?
8:20. Wires are saying it’s Paulson! Dollar rising on the news. Apparently, the NY Times said Evans would favor a weaker dollar.
8:22. Bloomberg very certain it’s Paulson.
8:29. Yep. It’s going to be Paulson according to “media reports.” DealBreaker says its true so it must be!
8:47. What? According to marketwatch, dollar is falling on the news of Paulson.
8:58. Still an empty podium outside the White House. I need another cup of coffee.
9:07. CNBC keeps saying we’re moments away! I’m so excited! I’ve put altogether too much sugar in my coffee!
9:14. John Snow walks out with George Bush and…Hank Paulson. Suck it Goldman Sachs shareholders! Watch your stock sink like the President’s poll ratings! You just lost your chairman and CEO.
9:16. The President is saying nice things about Snow. That’s sweet.
9:17. Wow. Not a lot of nice things. That was quick.
9:17. Now the President is saying nice things about America. “The American economy is powerful, productive and prosperous,” he says. He really seems to like us. I feel kind of bad the feeling are not reciprocated. So Hank shares the president’s philosophy of trusting the American people to save, spend and invest their money as they see fit. Is the President a tree-hugger?
9:18. Restrain spending! Cut the deficit in half by 2009! That’s “our” goal. “He’ll help ensure America’s trading partners play by the rules…respect intellectual property and maintain a market-based exchange rate.” Suck it China!
9:20. Snow is talking now. The President and Paulson look confused! Was Hank supposed to speak next? Why do we even have to hear from the guy going out? Snow keeps aiming his eyebrows at Paulson! I think they are growing while he’s talking. Does that mean he is lying or telling the truth?
9:22. Paulson speaks. Mentions “the competitive zeal of the American people.” Holy crap. We’re all working at Goldman now!

Opening Bell: 5.30.06

trafficjam.jpgOil Prices Rise As U.S. Enters Summer (AP)
Inappropriate determinations of causation are rife in AP articles on the economy, but these are our absolute favorites. Memorial Day weekend is the start of something called, get this, the ‘Summer Driving Season’. Apparently people’s cars, which go dormant in the winter, get taken out of mothballs, get a new coat of wax, and people finally start driving them. Most importantly, as soon as Memorial Day comes along, traders realize they should buy some oil to take advantage of all this driving. Now, you’d think that traders, having experienced several Memorial Days and seen this bizarre ritual known as ‘Summer Driving Season’ would know in advance that it was coming along. Some might even be so devilish to buy gas, oh, the week before, to get a jump on their fellow traders. You know, having seen the pattern so many times. But apparently they’re all much to honorable to exploit ineffincies such as this. And so each year, they pretend to be surprised that Memorial Day is upon them and they then decide to buy gas. Who knew it was so easy? Lest you think we’re being sarcastic, check out this cherry quote from an analyst: Many traders believe gasoline demand will increase in the United States as Americans are more likely to take domestic vacations due to a weakening U.S. dollar and rising airline ticket prices, Shum said.
Scrushy’s lawyer says Lay strategy was wrong (USA Today)
After Ken Lay was convicted, he spoke on the courthouse steps and claimed to be a lucky man for having a loving and Christian family. Jeff Matthews skewered this moment brilliantly over the weekend. But more amusing is that Donald Watkins, the lawyer for HealthSouth’s Richard Scrushy (who got off), claims that the Lay defense team should have gone with a different strategy. Scrushy, if you’ll recall, basically positioned himself as Jesus himself. He became a born again and hosted his own Christian family radio show in Birmingham (which, you know, plays pretty well there). According to Watkins, the Lay defense team shouldn’t have concerned themselves so much with the, you know, facts of the case. In other words, don’t save the Jesus stuff for post-conviction — make it central to the defense. Hmm, wonder if it would’ve worked for Martha.
Wal-Mart and the Buck (Big Picture)
Don’t look now but gas prices may be having an effect on consumer spending. Yes, they’ve been warning about this for years now, and it really hasn’t materialized, just as they’ve been warning that if real estate started to soften, people’s homes could no longer be the equity ATMs they once were. But new evidence from Wal-Mart suggests that the first part of the scenario may get fulfilled. Same store sales at the behemoth from Bentonville are expected to be weak, as low-end shoppers get pinched by higher gas prices. As further evidence that the spending patterns of the lower-end shopper are changing, some have noticed a change in purchase timing. Instead of seeing purchases smoothly throughout the month, consumers are concentrating their purchases around the 1st and 15th of the month — so they’re living paycheck to paycheck, with little in between. So if this part of the prophecy comes to pass, will the one about real estate-as-ATM happen as well? Time will tell.
Google Hates The Troops (Outside The Beltway)
Uh-oh, Google may have inadvertantly alienated a large chunk of the population by forgetting to change the logo at in honor of Memorial Day. The company likes to change their logo for all sorts of things, like Arthur Conan Doyle’s birthday, most recently. This is one of those things that could go away and be forgotten, or we might see conservative bloggers urging their readers to switch to for their search queries (Michelle Malkin enter stage right), in which case they could suffer some unnecessary hits to their reputation. Already this meme is getting spread around conservative circles (apparently they’re the only ones who care about Memorial Day).

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Hank-y Panky

paulson.jpg(We’ve been dying to use that headline forever.**) CNBC and the WSJ are reporting that, as previously speculated, Hank Paulson will be John Snow’s successor as Treasury Secretary. Bush is expected to announce the appointment in half an hour or so. We predict that this time next year the entire Treasury Department will be stuffing themselves into Ozocars and the Bush administration will be pointing to said Ozocars as evidence of the administration’s seriousness about energy conservation and overcoming oil dependency.
** Since 5 minutes ago.
Bush Favors Paulson as Treasury Secretary [WSJ]