If you were trying to design the perfect political fund-raising tactic, you probably couldn’t have come up with a better one than the private equity tax-hike proposal that has been haunting Capitol Hill this year. Despite their riches, private equity firms had not been very involved in politics until this year. But in the wake of the proposals they have reportedly spent millions of dollars to defeat the proposals.
And if something is working that well, you don’t just shut it off by bringing the proposal to a vote. Far better to keep the proposal—and the millions in campaign donations and funds for your friends in lobbying—alive for a bit longer. Especially when you have a big election year coming up.
As it turns out, that’s precisely what Senate Majority Leader Harry Reid has announced he is doing. The gullible reports make it sound like a victory for the lobbying efforts of the private equity firms, when in fact it is simply a rent-extraction victory for lawmakers and lobbyists. Basically, it is the political class shaking down the financial class for a bit of the wealth.
Ain’t democracy grand?
Update: Larry Ribstein has much the same reaction.
Buyout Firms to Avoid a Tax Hike [Washington Post]
Private Equity
Let’s see if we have this straight. Citigroup wants to sell off some on the leverage loans it committed to before the credit crunch. Many of those loans were made to private equity owned companies for leverage buyouts, including companies that KKR bought. A fund managed by KKR is looking to buy the leveraged loans, which it believes are under-priced in the wake of the credit market turmoil. But everyone knows KKR doesn’t buy anything with cash: it borrows the money. So now, according to the Financial Times, Citigroup might lend money to KKR to buy Citigroup’s loans.
This is very possibly the best story ever. The only way it could get better is if KKR went on to buy the loans used to buy loans from Citigroup. And, of course, Citigroup lent it the money for that. And then, well, you get the point. In the end of our fantasy, Citigroup’s stock get’s hammered by investors skeptical of this snake-eating-its-tail lending scheme. And get bought out by KKR. With loans from….
Insiders report that credit market expert Charles Ponzi has been retained as an adviser to both Citigroup and KKR for the transaction.
Citigroup talks to KKR about leveraged debt [Financial Times]
First Data was supposed to be one of the big leveraged buyout deals teetering on the edge of extinction thanks to the credit crunch this summer. The debt load of the company was said to be at the outer limits, leaving it with razor thin margins for slip-ups. But last week investors snapped up its $5 billion buyout loan. In fact, the loan was over-subscribed by about $2 billion.
Last night First Data said the deal had closed. First Data has gone private, and its stock has been removed from the New York Stock Exchange.
Earlier this month, the buyout firm behind the deal, Kohlberg Kravis Roberts & Co, was said to be in a nasty negotiation with the seven banks involved in arranging the First Data transaction. The banks had become nervous about massive loans on their books, and were pressing KKR to renegotiate its deal. KKR eventually did offer one concession—a leverage ratio financial test in its bank loans that has been described as “toothless” and “mere optics.”
While there are still questions about the financing—banks continue to look for ways to syndicate the nearly $24 billion in debt financing they committed to the deal—but fears that the credit crunch might derail the biggest deals, or leave a the financing banks with large losses, seem to be abating.
KKR completes $26 billion First Data takeover [Reuters]
It’s not easy working in private equity. First, you have to contend with kiss-ass underlings wanting “face time” pitching their latest money-making scheme. Then you have to deal with continuous media coverage deriding you for how much more money you make than everyone else. Really, can’t a private equity manager exist in at least semi-gold-dipped peace?
Even attending a conference is not as fun as it once was. The Dow Jones Private Equity Analyst Conference was awash with protestors at noon today by members of the Working Families Party and ACORN waving signs that read “Why does David Rubenstein pay taxes at a lower rate than an NYPD officer?” and “Why do New York state pensioners see risk while David Rubenstein sees profits?”
A revolution, some revolutionary once said, is not a tea party. Apparently, this time a revolution is a semi-snarky sign with a rhetorical question. We asked our editor in chief to comment on this question because he was the only sober person in the room.
“Don’t those types of people get paid by the hour?” Carney said. “If they’ve got time to protest, they’re clearly getting paid too much.”
It’s hard not to notice the irony that private equity has attracted its very own protest movement just at its eclipse. The owl of Minerva flies at happy hour. Note to the forces of the poor: you’re too late! The golden age of private equity is so fifteen minutes ago.
The Poors To Protest New York’s Richest At Waldorf-Astoria At Noon [Gawker]
Read the press release after the jump
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FOREX
We’ll Buy You, As Long As You Assume The Majority Of The Financing Risk In A Turbulent Market
By Keith HahnIt’s a pretty appealing pitch, especially when made by the Kravis & Schwarzman traveling comedy deal-team. It is amazing that Cadbury rejected the offer, especially when all it had to do was take on a high level of risk and create a less than optimal situation for shareholders.
The setup – Blackstone, KKR and Lion Capital offered to buy Cadbury for $13-$14 billion, but wanted Cadbury to finance up to $7 billion of the deal.
The punchline – involved Kravis drinking a ton of Dr. Pepper and burping every time Schwarzman tried to talk about IPO’ing before the market turned. It was reported that Cadbury’s discounted beverage unit smirked, but the company ultimately rejected the offer.
Cadbury is thinking about demerging rather than selling or floating considering the current PE market, and still thinks it’s worth a good $14 billion or so (7 billion pounds). In the early summer, competing PE consortia were vying for Cadburys with a valuation closer to $16 billion.
Cadbury rejects drinks bid due to financing: sources [Reuters]
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Private Equity
Are You Ready To Invest In Blackstone’s Distressed PE Financing Debt Fund?
By Keith HahnAs everyone watches the war of attrition that is the First Data deal, will the rather bold pursuit of PE funds trying to raise vehicles to invest solely in the distressed financing of their own deals dampen?
From Slate:
Last month, Henny Sender of the Wall Street Journal reported that the Blackstone Group, Texas Pacific Group, and the Carlyle Group are interested in snapping up discounted bank loans. “Executives at many private-equity firms say that could even include investing in the debt of their own deals,” Sender wrote. Last week, the Financial Times reported that “Goldman Sachs, Lehman Brothers, Apollo, Texas Pacific, Blackstone, GLG Partners, Oaktree Capital and Blue Mountain” are beating the bushes to raise funds aimed at purchasing discounted bank loans.
It’s glorious financial post-modernism, or a game of “flip the discount” until someone profits. Whole multi-billion vehicles set up based solely on one big macro entry-point guess. Doesn’t exactly seem like a sophisticated strategy, and one that could definitely backfire. What if an entire distressed distressed PE debt fund was sold to a secondary PE shop at a discount? Our head is going to explode.
Getting Paid To Clean Up Your Own Mess [Slate]
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Citigroup
Cracking KKR
Private Equity Giant Shows Willingness To Make Concessions On Closely Watched LBO Deal
By John Carney The banks have won the first big show down with private equity.
Last night several news outlets, including the Wall Street Journal, reported that private equity giant Kohlberg Kravis Roberts has signaled a willingness to include a financial covenant for the bank loan portion of the $24 billion of debt needed to finance its purchase of First Data.
First Data was largely viewed as a test case for some of the biggest, and riskiest, of the highly leveraged buyout deals that are scheduled to close in the next few weeks and months. The banks had been asking the private equity sponsors of the deals for concessions on the terms of the financing, saying it was having trouble syndicating the debt due to recent concerns about debt levels by many investors.
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