Jonathan Keehner

February's M&A figures predictably stayed on their dismal track, with announced deals down 49 percent to $157 billion from $310 billion during the first two months 2007, according to Dealogic.

But there was one surprise in the numbers -- Moelis & Co, which rainmaker Ken Moelis founded after leaving UBS last year, ranks fifth in U.S. advisory so far this year. That puts the nascent firm above JPMorgan, Merrill Lynch -- and UBS.

Of course it's only two months into the year and Moelis' ranking is due to advising on a single deal, Microsoft and Yahoo. But new names on static league tables are significant. 

It's way too early to tell -- but with the credit crunch hampering bulge bracket banks, could deals this year be won more on advice than balance sheets or underwriting?

Below are the U.S. advisor rankings by volume from Dealogic.

With more traditional offerings sitting out today's choppy markets, some of the hottest recent IPOs have been from so-called blank check companies. These special purpose acquisition companies, or SPACs, float shares to fund acquisitions -- a strategy that looks promising as credit woes sideline more leveraged buyers like private equity.

But popularity may come at a price: bigger SPACs mean big investors like hedge funds can crater a deal by witholding support -- potentially at the expense of the SPAC sponsor. 

If a SPAC doesn't get a deal done, shareholder money is returned by the sponsor -- so there's always a chance sponsors will buy out naysayers at a premium to get the deal done. For the hedge funds that's a low risk proposition -- for sponsors it's increasingly anything but. That's why market sources say some sponsors are starting to think twice about going ahead with SPAC plans.

The number of SPAC offerings last year nearly tripled from 2006 and topped $12 billion. So far this year shareholders have rejected deals at two SPACs, which typically give themselves 12 to 18 months to do a deal. With so many deals having to be done over the next few months, hedge funds should have ample opportunity to squeeze sponsors this year. Below is a table of dissolved SPACs from DealFlow Media.

Word that Clear Channel settled a dispute with Providence Equity Partners over a $1 billion sale of TV stations was a bit of good news for shareholders -- until they heard that Wachovia, a lender on the deal, filed in North Carolina to get out of its financing commitment.

The lawsuit, available here, could put Clear Channel's TV deal in the recycle bin with the likes of PHH and Reddy Ice, whose deals fell victim to financing concerns from banks rocked by write-downs in leveraged loans and other securities.

That's bad news for Clear Channel shareholders. And given how bumpy a ride it's been waiting for the company's $20 billion LBO by Thomas H. Lee Partners and Bain Capital to close, they could have used the break.

(Image: Clear Channel executives Lowry Mays, Mark Mays and Randall Mays)

A proxy battle for Yahoo, which Microsoft is reportedly set to authorize, would top $40 billion and be the largest on record -- but faces some tough odds for success.

There have been 27 corporate proxy fights to facilitate a hostile takeover since 2001, according to FactSet SharkWatch (which has been tracking the data for 8 years), but only 12 went to an actual vote -- with the rest withdrawn or settled.

Raiders won board seats in only 5 of the cases -- and in 9 of them terms of the deal were sweetened. Below are the hostile proxy fights for companies with a market cap above $500 million since 2001, according to FactSet SharkWatch.

The credit crunch plot thickens.

A group labeling itself only as "The Syndicated Debt Covenant Review Roundtable" took out a half-page ad in today's Wall Street Journal that read: "Sophisticated Lenders: Demonstrate Your Sophistication! Take back Your Rights!"

The ad calls on lenders to demand an end to "unrestrained collateral sale, release or substitution" and insist on "fixed, determinable dollar amounts of equally secured debt."

Leveraged loans, the debt behind much of the private equity boom that often lacks traditional safeguards, have caused lenders serious concern with the economic picture worsening.

The ad was taken out for "educational purposes" according to Jacob Cherner, who said he was a spokesman for the group, which is backed by "traditional syndicated lenders" like pension funds or regional banks. Cherner declined to name the group's supporters -- and said that one goal was to demand that investment bankers return to standard covenant  packages and that the group may post on its Web site public credit agreements provisions for deals in the market.

Market sources speculated that one group backing the mystery ad may be Beal Bank, which is affiliated with CSG Investments, Inc., Loan Acquisition Corporation, and Beal Mortgage Services. A call to Beal Bank on the matter was not returned but Cherner has been previously associated with Beal affiliates, who reportedly paid for a WSJ ad last year regarding a lending agreement. The bank was founded by Andrew Beal, a Texan billionaire who has reportedly bet millions in poker games.

And in the Feb. 18 issue of Barron's, Sotheby's realty group took out a half-page ad for "Distressed Florida Real Estate" portfolios from $5 million to $350 million. The sellers weren't named and an email to Sotheby's was not returned.

The ad, which offered a "Wholesale Bulk Purchases Opportunity With Accelerated Disposition at Retail Prices in Pre-Determined Time Frame," is for "Serious Inquiries Only" -- but with vultures starting to circle, that's probably only a matter of time. 

(Image: Dutch magician and illusionist Hans Klok. Reuters file)

The aftermath of private equity's golden age won't be pretty for many, but restructuring folks are getting excited. 

For companies taken private during the go-go years of private equity, the debt burden that accompanies an LBO may be overwhelming in a downturn -- leaving plenty of opportunities for distressed investors in the buyout rubble.

The private equity wave, with its focus on maximizing sponsor profits by leveraging target companies, helped create what may be the most promising environment for distressed investors in 17 years, Marathon Asset Management chief Bruce Richards said today at the 2008 Leadership in the Distressed Markets conference.

"At the end of the day, the equation really was what's the maximum amount of debt that we can put on this company?" said Richards, whose firm manages over $10 billion. 

Indeed with cracks appearing in the leveraged loan default rate, LBOs already look promising for distressed investors.

"Everything is priceable in this marketplace -- it's just that most of the marketplace doesn't want to wake up to where those prices are," said Richards. "I have at my desk about 162 companies that we think are going to default or be forced to restructure in the next 12 to 18 months."

And for private equity firms responsible for much of the buyout boom? They're unlikely too miss out on any restructuring wave -- many also have their own workout groups.

"The availability of capital over the last few years has created a pent up, if you will, stress on companies," said Steven Zelin, a senior managing director in Blackstone's restructuring group, at the conference.

"There has been a fair amount of profitability in the large deals, not so much because of the underlying fundamental opportunities in the business -- which there is in many, many instances, but because of the financial engineering capability that was perceived to exist when the deals were first done."

(Image credit: www.utexas.edu)

Private equity's "golden age" is looking a little less shiny for lenders behind the LBO boom.

Here's what has them nervous: many LBOs were in industries which are vulnerable in a downturn; borrowers were leveraged to the hilt after a buyout, and a lot of leveraged loans are "covenant lite" -- which means they lack fundamental control mechanisms.

With the specter of a recession looming, that's enough to make even the most solid LBO credit loose its luster -- which may be why banks have struggled placing $2 billion in loans behind the LBO of computer retailer CDW Corp by Madison Dearborn and Providence Equity Partners.

And the leveraged loan default rate, while at a historic low, may not give much comfort -- in the case of covenant lite loans, low defaults may mean low recoveries as companies deteriorate without triggering defaults.

Of the nearly $690 billion in leveraged loans issued last year, 10 percent were covenant lite, according to Reuters LPC. That's up from 4 percent of the $612 billion issued on 2006. Below is a chart on covenant lite issuance from RLPC.

Options trading aside, one of the best things about Nasdaq buying the Philadelphia Stock Exchange may be a lot of bull.

Earlier this month Nasdaq went so far as to have a bull rider ring its opening bell -- but PHLX just brought in the real thing. A 2,000 pound bull named "TC" opened the Philly exchange, after entering through a loading dock (seen here with PHLX head Sandy Frucher).

Having already tapped the wealth of talent at CNBC three times this month -- including The Big Idea host Donny Deutsch, the Mad Money crew and Fast Money's Jim Cramer -- Nasdaq could probably stand to switch it up a bit when it comes to bell ringing.

That's where PHLX comes in. Besides TC -- who rode the freight elevator -- the plucky exchange's bell has been rung by Civil War re-enactors and even Martha Reeves of the Vandellas (as in "Dancing in the Street"). Now that's synergy.

If you were wondering how big a year it was for buyout shops, here's your answer: partners at mega-funds were paid an average of $2.7 million this year. That's up 8 percent from the prior year, according to a report by recruitment company Glocap and Thomson Financial.

But before anyone calls them overpaid, take a look at the numbers below. Relative to increases for their junior colleagues, that was a modest raise for PE partners.  

For mega-funds, or those with over $5 billion in assets, below is the total average compensation by title for 2007 (with increases over 2006), according to the report: 

(Image: Blackstone CEO Stephen Schwarzman in 2007. Reuters file)
    

Responsible for billions in write-downs from sub-prime, commerical and other mortgage-backed securities, real estate bankers kicked off the New Year a bit nervous around the office. This week UBS showed why.

CEO Marcel Rohner issued an internal memo on a massive restructuring at the Swiss giant -- aimed squarely at reining in real estate activities.

Here's what Rohner said:

On Real Estate and Securitization:

"We have already improved efficiency and expect a total headcount reduction of close to 50% from the peak of last August. We will reduce balance sheet utilization by two-thirds, strengthen risk discipline by creating a dedicated risk management position, and enable our staff to focus on building a leading client-driven franchise for 2008."

On MBS/ABS Sales and Trading:

"We have already scaled back our origination activities, including the closure of UBS Home Finance, as we believe this market does not offer profitable new issue opportunities at this time."

On the Real Estate Workout Group:

"In order to ensure robust risk management of our legacy positions, we will be segregating our existing illiquid MBS, ABS and CDO portfolios into a newly-created workout group...Our aim is to reduce exposure to this asset class in an orderly manner while minimizing further downside risk."

On Real Estate Finance:

"The REF group will focus on providing commercial real estate finance with the intention of distributing our risk via the securitization or loan syndication markets."

(Image: Marcel Rohner of UBS  at a news conference in Zurich in 2006. Reuters file)