from Funds Hub:
Distressed investing: surprises at every turn
Investing in a company in trouble is rarely for the faint-hearted, as the funds lending to Eggborough power station know.
Earlier today France's EDF, Eggborough's current owner, confirmed lenders to the coal-fired power station planned to exercise their option to buy the Yorkshire plant for about 190 million pounds.
The lenders, which include Bluebay Value Recovery Fund, took on the debt following an earlier restructuring of the company. Reports suggest that despite the low acquisition price, Eggborough may be worth as much as a billion pounds.
Other unusual results of distressed investing recently include Octavian Advisors ending up on the board of sporting goods firm Head NV, mezzanine lenders landing up in a big London restructuring court case, and Vinci buying up bits of British builder Haymills via a prepack deal.
Down at the Car Wash
After three days of hearings in a cramped courtroom at London’s Royal Courts of Justice, when the judge “blessed” lenders’ plan to take control of British car cleaning firm IMO Car Wash.
As I wrote earlier, this rare moment in the sunshine for Europe’s largest car-cleaning firm came as low-ranked junior lenders failed in their attempt to block senior creditors’ plans to take over the company as part of a debt restructuring.
On the first day of the hearings I counted no fewer than 72 people in the court as London’s distressed-debt and restructuring community queued to listen to the arguments in this landmark case. One day I ended up sitting on the floor of the courtroom next to one of London’s financial elite listening to lawyers putting forward complex legal arguments about valuation methodologies.
With Blackberrys banned from the courtroom, attention was sharply focused on as some of London’s top corporate lawyers went toe-to-toe in the first big restructuring court case of the year.
While Justice Mann affected not to understand the interest in the case, senior lenders say that the precedent set by the judge’s ruling makes it significantly easier to eject junior lenders in a debt restructuring.
These lower-ranked lenders have already lost out in a succession of restructuring deals this year, one senior lender source told me, so it was not surprising they wished to stand and fight at some point.
But the ruling may end up being disastrous for junior lenders, said one distressed-debt investor. Many private equity owned companies need their debt restructured and one of junior lenders’ best negotiating tools has just been erased.
Timing is everything, private equity finds
With the market talking of green shoots, it seems only a matter of time before the predators of the private equity world begin stalking the market again. Simon Meads and I took a look at the issue earlier today.
We found that though many private equity houses are still licking the wounds inflicted by ill-judged boom year deals, others remain keen and ready to go. Many of these firms timed it just right, either raising funds late in the credit cycle or selling companies at the top of the market.
Private equity companies in a good position include Advent International, Bridgepoint, CVC, Charterhouse, Cinven, PAI and Warburg Pincus.
For those that got it wrong, keeping their heads down and hoping for a change in fortunes seems the preferred option. But for those in the worst position, help is required: badly wounded Candover is now looking for a buyer and debt-laden 3i has asked for fresh funds from shareholders.
For those lucky enough to have money to invest, buyouts have changed with the times. Distressed funds, secondary funds — which deal in second-hand private equity assets — growth capital and niche buyouts are all tools of choice for today’s private equity hunters.
from Funds Hub:
Dog Days at Cerberus
Embattled Cerberus Capital Management, a private-equity firm named for the mythological three-headed dog that guards the gates of Hades, has been overwhelmed by clients seeking to withdraw money from its $2 billion hedge fund, Cerberus Partners.
Website FINAlternatives said that fund investors representing 17 percent of the assets wanted to withdraw their money in December, the most recent month for which statistics are available. Now, with Cerberus's investments in Chrysler and GMAC going bad and unemployed investors needing to tap more funds, that figure may be heading higher.
Now, according to this Bloomberg report, Cerberus sent a letter to clients warning them that it could take "years" to meet all the redemption requests, which have stacked up since the firm imposed gates in December.
“The fund’s withdrawal requests have increased substantially since the fund suspended withdrawals, partially because investors wanted to reserve their place in line and partially due to individual investors’ own liquidity needs,” according to the letter.
Like some other hedge fund firms juggling the desires of investors who want their money, with trying to avoid gutting their portfolio with forced selling, Cerberus is considering creating a special vehicle that would carve out a portion of the fund to be liquidated and distributed to investors who want out. But it also says this would not be a quick fix. Company founder Stephen Feinberg told investors the fund “Would be managed by the general partner until it is fully liquidated, a process which might take several years.”
So should Cerberus investors lump the hedge fund in with its auto wrecks? The Cerberus Partners fund lost 16 percent in the year ended last November and fell 3 percent to $1.99 billion in the first two months of February, but at least one private equity investor tells us they are not any worse at this business than their competition. Still, investors may want to tread warily around the three-headed dog when Feinberg says the current mess has created some great new distressed debt opportunities for his firm.
Cerberus spokesman Peter Duda declined to comment for this post.
