Friday, December 12, 2008

From “Golden Age” to “Financial Armageddon” in 18 short months?

Flaherty was duped by Wall Street once again.

It wasn’t 18 months ago that Henry Kravis of KKR was in Nova Scotia at a conference on private equity pronouncing that "We're in, right now, the golden age," "The private equity world is in its golden era right now," "The stars are aligned."

KKR as you know was one of the bidders to take BCE private by way of an LBO. Now comes word from the Financial Times of London that “Fear of financial “Armageddon” is starving private equity of fresh funds”

Good, as it couldn’t happen to a nicer bunch of blood sucking, tax draining, risk inducing pirrhanas. Meanwhile we have a virtual moron of a Finance Minister who actions and income trust tax policy played right into the hands of these private equity the expense of all taxpaying Canadians. And he’s in charge of our economic turnaround?

Collapse of BCE plan fuels private equity industry concern

Financial Times
By Martin Arnold in London and Henny Sender and Francesco Guerrera in New York
December 11 2008

Fear of financial “Armageddon” is starving private equity of fresh funds, one investor warned on Thursday, after the collapse of the $41bn takeover of Canada’s BCE telecoms group marked a low for the industry.

The BCE deal would have been the world’s largest leveraged buy-out when it was announced in June 2007. Its collapse underlines how severely conditions have turned against private equity in the past 18 months.

The credit crunch has prompted banks to stop providing loans for buy-outs – the lifeblood of private equity – while market turmoil has made many investors incapable or unwilling to supply the cash needed for the equity portion of buy-outs.

“As long as we are considering an Armageddon type of scenario, our hands are going to be tied for new funding in private equity,” Mark Boyle, head of private equity at the $140bn investment arm of Northwestern Mutual Life Insurance, told a conference on Thursday in London. “This environment has investment professionals so rattled they are thinking the unthinkable.”

The groups that rode the “mega buy-out” boom, such as Blackstone, Kohlberg Kravis Roberts, TPG Capital and Bain Capital are already unable to raise much debt. If they are starved of fresh investor money for new deals, their future looks even less certain.

“It is too early to talk about a buyers’ strike, but if the markets continue down, that could happen,” said the person responsible for financing buy-outs at one of the banks involved in the BCE deal.

William Gilmore, investment director of private equity at Scottish Widows, said: “I suspect there will be a shake-out in the industry and some GPs (private equity general partners) will not be able to raise new funds.”

The unwinding of the BCE deal underscores how far the economics for other players involved in the buy-out world have changed. Senior bank debt in many big buy-out deals is trading at 50 per cent discounts.

Investors are selling their interests in some private equity funds for below 50 cents in the dollar.

“October of this year was the 1929 Crash equivalent for debt markets,” said Stephen Pitts, head of leveraged finance at Deutsche Bank. “Banks, when they lend, need to see rising asset values. So we must end this deflationary spiral first.”

The failure of the BCE deal, which came after accountants at KPMG decided it would render the telecoms group insolvent, turned out to be good news for the investors in the deal, which included the private equity firms Providence Equity Partners and Madison Dearborn Partners.

None of the investors in those two firms refused to meet their iron-clad commitment to write cheques for the deal, according to people familiar with the matter.

However, many of the investors were unhappy with the prospect of having to come up with the cash at a time when they face big losses across their portfolios.

The collapse of the BCE deal is good news for the banks that had agreed to finance it. The consortium of lenders, led by Citigroup and including Deutsche Bank, Royal Bank of Scotland and Canada’s Toronto Dominion would have faced writedowns of some C$10bn (US$8.2bn) on the C$34bn financing package, said people close to the situation.


Anonymous said...

Canada’s Private Equity Showcase.

Keynote Speakers:

Former Prime Minister of Canada and member of the board of directors of The Blackstone Group, L.P., The Right Honourable Brian Mulroney, and

Minister of Finance of Canada, The Honourable Jim Flaherty

Corporate Bully said...

RBC Bank President Gordon Nixon - Salary $11.73 Million


I'm a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.

There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn't familiar with these type of loans. She never informed me verbally or in writing about this new criteria.

Phone or e-mail:
RBC President, Gordon Nixon, Toronto (416)974-6415
RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail
RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail
RBC Senior Manager, Media & Public Relations, Beja Rodeck (416)974-5506 mail
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail

"Fighting the Royal Bank of Canada (RBC Bank) one customer at a time"

Dr Mike said...

So how did Flaherty let this whole income trust mess get away from him??

Did he not understand what was going-on here??

Was he not up for the job??

Did he not look at all the info or did he not have someone in the know do it for him if he was not up to the task.

All I know is that he sucked the life out of the financial markets in Canada & at the same time pulled down the small investor with them.

A crime was committed here--he & his minions tried to cover-up the paper trail with blackening fluid & it worked.

The public was hornswogolled by a guy who was in over his head.

And who paid the price--certainly not him.

Dr Mike Popovich.

Richard The Vitriolic said...

For some strange, mysterious reason the CON party is always credited for being the go to guys when the economy is in trouble. A result of their own propaganda and a compliant media, who spread that bull shit. Since the election of Harper the Whore and Finance Minister Flatulence, the Canadian economy and citizens have been victimised by the Halloween 2006 attack on income trusts, a.k.a. The Tax Fairness Plan, the 2007 asset backed commercial paper (ABCP) bank scam and in 2008, the meltdown of Bell Canada's bond and shareholders. Now in Saturday's (December 13) Globe & Mail we find out that the AIG cancerous high risk mortgage scam was let into the country by the Two Whores with legislation contained in their May 2006 budget.

Legendary economist Murray Rothbard observed: "It is no crime to be ignorant of economics, which is, after all, a specialised discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

That perfectly describes Harper & Flaherty; whose public pontifications on matters economic show their incompetence, while whoring themselves out to the insurance fraudsters, banksters and other predators of the beguiled investing public.