Can American Capital find a rich suitor?
More consolidation may be coming to the world of private equity lenders. Debt-laden Allied Capital solved its long-standing problems last week when it sold itself to Ares Capital. Rival American Capital, once an S&P 500 component but now struggling for survival, could be the next takeover target.
But some investors wonder if Allied got a raw deal. Ares paid $3.47 a share in stock for a company that had a book value of $7.49 in June. One law firm has already launched a “shareholder investigation“. Similarly, American Capital’s shares trade below $3, compared with a book value of $8.76 at the end of June.
Ares Capital is one of the rare healthy players in the field. It has a strong balance sheet and minimal liquidity concerns, and it has managed to pay a dividend throughout the worst U.S. recession since the Great Depression. For an Allied shareholder used to a continuous flow of bad news, swapping that stake for an investment in a healthy company must seem like a good move.
Like Allied, American Capital has suffered as the recession reduced the value of the companies it invested in. As a result, it’s gotten harder to sell them except at distressed prices. That value reduction is a big blow for a cash-starved company that has already defaulted on $2.3 billion of debt.
Both American Capital and Allied have sold portfolio companies at heavy discounts to their purchase prices. Now with equity markets sharply up from their doomsday-scenario lows in March, American Capital is on an aggressive selling spree. Recently it sold components distributor Imperial Supplies to W.W. Grainger and life sciences equipment maker Axygen BioScience to Corning.
Unfortunately for American Capital, it may not have all that many more companies in its portfolio to sell at decent prices. Its best bet may be to find a healthy suitor for itself so it can return some capital to shareholders before it’s too late.
– Anurag Kotoky
Road to fortune or highway to hell?
That will ultimately be the question asked about what kind of a future the German carmaker Opel faces.
Parent General Motors said on Thursday that it indeed wanted to sell a majority stake in the unit to Canadian auto parts group Magna and Russia’s Sberbank, a decision long favoured by the German government under Chancellor Angela Merkel.
With about two weeks to go until a general election in Europe’s biggest economy, this would clearly be a political victory — but the question remains whether it will also be an economic one.
Merkel said that GM’s recommendation — which would see Magna’s Brussels-listed rival bidder RHJ International losing out in the battle that has dragged on for months — is going to be tied to conditions.
Although she said that those conditions would be manageable and negotiable, doubts remain about whether this will be the new beginning the company is hoping for.
“The most meaningful choice would have been a global company that produces several millions of cars (per year), such as GM or a Chinese producer. Magna is not a producer of cars in the classic sense, and I could imagine that some other producers could be upset about the decision. As a consequence, Opel may lose some contracts,” said NordLB analyst Frank Schwope.
“This seems to be a political decision rather than an economical one.”
from Funds Hub:
Hedge funds sniff out bond exchange bargains
Hedge funds may be sniffing around the growing mountain of troubled European companies, picking out those they see as most likely candidates to undertake bond exchanges as a way to make money, according to market talk.
Debt-laden Dutch NXP Semiconductors NXP this week managed to cut its debt by about $465 million in an example of a debt-swap restructuring deal that has been more common in the United States up until now.
This type of deal is expected to become more prevalent in Europe now, however, as a way to salvage firms with good business models but which have been saddled with too much debt.
Hedge funds can make significant returns by buying bonds that have fallen to low double-digit prices in companies where a possible debt exchange would give them a better recovery rate on their investment.
The trick is knowing what part of the capital structure the debt exchange will be aimed at.
"You would have to play it pretty carefully," said one fund manager. "It's a specialised area."
What a joke. Yea all their companies have accurate marks.
They are in default on covenants. The debt holders are in the drivers seat.
Next sell off in the stock market and they will be forced to file. Then Malon can go back to the commune.