DealZone

Cocos – credit market classics?

 ”Cocos” has become the user-friendly name for a new type of hybrid bond created to help UK bank Lloyds raise money from investors to break away from a government insurance scheme for bad loans.

This nickname seems to have caught on in financial circles as it is much snappier than the bonds’ official title: Enhanced Capital Notes.

The name Cocos seems to have derived from “contingent convertible,” which describes one characteristic of these bonds – they convert to equity in certain circumstances.

Coco was famously the first name of French fashion designer Chanel. She was not known for her understanding of the credit markets but she did know a thing or two about fashion and the value of tradition over new-fangledness.

One senior capital markets banker pointed out these comments she made:

“Innovation! One cannot be forever innovating. I want to create classics.”

Miracle worker wanted at CIT

CIT Chief Executive Officer Jeffrey Peek plans to retire at the end of the year, but the company could well be bankrupt before it concludes its search for a replacement.

Dan Wilchins and Paritosh Bansal report that bondholders are showing little interest in exchanging their debt for equity in the troubled lender to small- and medium-sized businesses. Earlier this month it said it was looking for investors to approve a large debt exchange that would reduce its borrowings, or to approve a prepackaged bankruptcy. CIT listed $71 billion of assets on its balance sheet as of the end of June.

Peek, formerly an executive at Merrill Lynch, has led CIT since 2003. He has been widely criticized for being slow to recognize the extent to which the credit crunch would stress the company’s business model by lifting its borrowing costs. If a white knight is anywhere in sight, he better have something more convincing to sell bondholders than green shoots and the promise of a better tomorrow, as about $3 billion of debt comes due in the fourth quarter.

Another deal in healthcare: what’s the magic pill?

pillsAs dealmakers everywhere struggle to get deals done, the healthcare industry seals yet another one.

Express Scripts has agreed to buy health insurer WellPoint’s prescription business for $4.68 billion in a significant expansion for the U.S. pharmacy beenfit manager. The deal will be a concoction of cash and up to $1.4 billion in common stock, and will generate more than $1 billion of incremental EBITDA.

This comes on the heels of Pfizer’s $68 billion acquisition of Wyeth, Merck’s $41.1 billion takeover of Schering Plough and Roche Holding’s $46.8 billion buyout of Genentech. Granted, this isn’t a pharma deal, but it still falls under the umbrella of the healthcare sector.

from Funds Hub:

Blowin’ in the wind

rtr22twuThe timing of the Alternative Investment Management Association's hedge fund disclosure initiative indicates just how strong the winds of change are blowing in hedge fund land.

Coming just a day after ECB President Jean-Claude Trichet called the credit crisis "a loud and clear call" for extending hedge fund regulation, the move shows the hedge fund industry feels it must be more active in deciding the future shape of regulation.

The move, which will include regular -- probably quarterly -- disclosure of systemically significant holdings and risk exposure to national regulators, goes further than that suggested at last month's Treasury Select Committee by Marshall Wace chairman and Hedge Fund Standards Board trustee Paul Marshall, who had proposed aggregating data through prime brokers.

from Funds Hub:

A loud and clear call

rtr1y8m4It may not have been a massive surprise, but ECB President Jean-Claude Trichet had an unwelcome message for hedge fund managers today.

The current crisis is, apparently, "a loud and clear call" to roll out regulation to all important market players, "notably hedge funds and credit rating agencies".

For those hedge fund managers who felt, perhaps with a degree of justification, that their industry had been relatively blameless in precipitating the current crisis, that call may have been somewhat quieter and more muffled.

Doom and glee in bankruptcy

Top-class bankruptcy lawyers, vulture investors and credit experts revealed a range of emotions at a bankruptcy conference on Thursday, from doom and gloom to subdued confidence, but some comments bordered on outright glee.

Reflecting on the prospects for distressed investing opportunities this year, Michael Psaros, managing partner at KPS Capital Partners, was blunt.

“We are going to invest an awful lot of money this year,” Psaros said, during a Dow Jones restructuring and turnaround conference in New York. “We’re just very excited about this year and next.”

Is the tide turning for Switzerland’s banks?

BANKING-SECRECY/SWITZERLAND

UBS and Credit Suisse both have strong wealth management businesses — and the new year seems to have brought new hope.

UBS, which has written down more toxic assets than any other European bank, says it has had an “encouraging” start to 2009, with inflows into both its wealth and asset management businesses in January. Credit Suisse says it had a “strong start to 2009″ and was profitable across all its units so far this year.

This could be music to the ears of the Swiss, whose country may be faring better than others in the downturn (so far, at least) but is particularly reliant on its financial sector.

GMAC’s Christmas present

Santa ClausThe Fed donned the red suit on Christmas eve for GMAC, giving the troubled auto finance company the nod to become a bank holding company.

The speedy approval should not come as a surprise, given that GMAC lends to consumers and GM depends on the finance company to sell cars — factors that could make its survival seen as key to fixing the economy.

The new status gives the company access to government lending programs and should allow it to continue financing loans for GM cars.

Restraining order

Zuberbuehler director of the Swiss Federal Banking Commission attends a news conference in BernAs if having the U.S. Justice Department on your back because your bankers may have been helping wealthy Americans avoid tax wasn’t enough, Swiss banking giant UBS also has to deal with grumpy regulators at home. The head of the Swiss Federal Banking Commission, Daniel Zuberbuehler (pictured), tells us that singling out UBS and Credit Suisse for tough treatment is justifiable and has laid down a tight timetable for new rules to restrain the two. The banks will be required to hoard considerably more capital, which will surely slow them down on Wall St. On Monday, the DOJ said it had asked a federal court in Miami to authorize the Internal Revenue Service to request information from UBS about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes. Coughing up tax fraudsters to the IRS could make the sell-off of UBS’s U.S. wealth management backbone – once known as Paine Webber – a tad trickier, but perhaps no less necessary.

A detailed blow-by-blow of the death of Bear Stearns by Vanity Fair’s Bryan Burrough casts current market rumors rumbling about the health of Lehman Brothers in an eerie light. The author, who DealBook notes co-wrote “Barbarians at the Gate,” takes aim at CNBC and hedge funds as it works to uncover what it posits could be the “murder” of the country’s fifth-biggest investment bank. This morning, CNBC’s Charlie Gasparino and DealBook editor Andrew Ross Sorkin are talking about the prospects for Lehman being “taken out”.

High in the “priced to move” column, commercial lender CIT Group agreed to sell its home lending business to private equity firm Lone Star Funds for $1.5 billion in cash to increase liquidity, and said it would take a related second-quarter charge of $2 billion. CIT also agreed to sell its $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance for about $300 million. “These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class,” Chief Executive Jeffrey Peek said. Lone Star will also be taking on $4.4 billion of outstanding debt and other related liabilities. Home lending may not be that far off the path for CIT, but getting out of the business certainly helped tax preparer H&R Block, which announced strong results and a better outlook yesterday, so any price is clearly worth it – CIT’s stock was up over 11 percent in premarket trade.

Money for Nothing

ubs.jpgUBS said it made a huge loan to Blackrock so that the U.S. asset manager could buy $15 billion of distressed assets from the Swiss bank, easing the strain on UBS’s balance sheet, but not freeing it from the risk. This must have been a tough one for UBS’s credit department to swallow. Citigroup took a similar tack to offload subprime assets. UBS said it had provided 75 percent of the funding used by Blackrock to buy the portfolio. Blackrock raised $3.75 billion in equity from investors to pay for the rest of the package, UBS said. UBS’s stock was down about 4 percent, but traders said that was because of concerns the bank may have to increase the size of its rights issue.

Time Warner and Time Warner Cable said their boards agreed to split the companies, giving Time Warner $9.25 billion from a special dividend that it will use towards paying down debt. As part of the deal, Time Warner’s stake in the cable operator rises to 85.2 percent from 84 percent. The Wall Street Journal says Time Warner will slash its $34.6 billion debt load, by two-thirds. Time Warner Cable now has a more hefty debt load, borrowing to pay the dividend.

Dutch office supplier Corporate Express is said to be bolstering its defenses against a hostile Staples bid with a deal to buy French rival Lyreco for 1.4 billion euros ($2.2 billion) that the companies say would make it the biggest office supplier in Europe, but is spooking investors. Corporate Express shares fell almost 9 percent. Lyreco says the combined company would better weather weaker economic conditions and demand. “Volume and size helps in this business,” he told reporters. Staples formally launched its 1.5 billion euro unsolicited bid for Corporate Express on Monday, which the company rejected as too low.