I for one was heartened a few weeks ago by Petco’s PIK-toggle dividend recap debt deal at 8.5%, which I interpreted as a moderately bullish signal of economic confidence while also keeping an open mind to the possibility that it was simply a one-off indication of investor love for dogs. Dogs! Today the Journal provides additional similar data points and the recovery seems to go beyond the pet-supply sector:
Debt issued to fund private-equity dividends has topped $54 billion this year, after a flurry of deals earlier this month, according to Standard & Poor’s Capital IQ LCD data service. That is already higher than the record $40.5 billion reached in all of 2010, when credit markets reopened after the crisis.
Also some of these deals involve a risky type of debt known as “payment in kind toggle”—or PIK-toggle—bonds that give companies the choice to defer interest payments to investors. Instead, they could opt to add more debt to the balance sheet. The default rate for companies that sold PIK-toggle bonds was 13% from 2006 to 2010, twice the default rate for comparably rated companies that didn’t use the bonds, according to a study by Moody’s Investors Service.
If you use PIK-toggle-dividend-recap as a barometer of economic activity, and of course you do, then yes it is definitely creeping toward its highest, “2006” setting. On the other hand another barometer isn’t. Equally enjoyable was the Journal’s companion piece on the bad news implied by dividend recaps: Read more »
I’m kidding, of course. As you may have heard, Carlyle is considering buying a stake in a hedge fund manager and is in talks with multiple firms, in addition to looking to raise “two new debt funds and a $1 billion pool to buy small companies.” The units would be overseen by Mitch Petrick, who joined the firm in March from Morgan Stanley. Presumably, there are at least a few people who are amped about Petrick’s potential stewardship, while others are, how to put this, less than thrilled. Read more »
The Vuitton, Versace, Gucci, and Dior bags will have to wait, or slip into a slipping revolver, we suspect, as Carlyle group finally admits it got tagged. Takes a lot for a private equity firm to admit to such things without lots of excuses about being on the left side of the “J curve.” We’re thinking short-luxury-goods just became an (even more) interesting trade.
“After several years of unprecedented growth, product innovation, geographic expansion, capital deployment and investment gains, our world changed dramatically,” the Washington-based firm said in its annual report on its Web site today. “2008 was a humbling experience for us.”
New York Attorney General Andrew Cuomo has just announced an agreement with The Carlyle Group, which includes a $20 million fine and Carlyle’s agreement to sign a “code of conduct” that would preclude, among other things, PE firm employees or employee family members from contributing to pension officials (within two years of doing biz with the pension).
Carlyle is going to have to do without their Gulfstream 450, apparently. Those, of course, are not its only problems.
In December, the firm announced plans to slash 10 percent of its staff–the first layoffs in Carlyle’s 20-year history–and it also said it planned to close down its Silicon Valley office.
Tough times for the mile high club.
The Corporate Jet Exodus: Welcome, Carlyle Group! [Cityfile]