Unstructured Finance

Half empty glass

A pint of beer stands on the bar of a public house in Leeds, northern England October 13, 2008. REUTERS/Nigel Roddis (BRITAIN)The recent history of Britain’s eccentrically-named Slug & Lettuce pubs should make a sobering read for ambitious property investors with an eye on similar investments.

The chain’s woes began in 2005, when its then owner, the SFI Group, plunged into administration due to difficulties with its finances.

Its collapse triggered property tycoon Robert Tchenguiz to buy up the group’s best outlets and bring them into his Laurel Pub Company.

Three years later, it was the turn of heavily indebted Laurel to crash into administration, caught out by a downturn in the economy and difficult financing conditions. As part of the adminstration process Laurel split into two, with the Slug & Lettuce pubs placed into a new company, the Bay Restaurant Group, as part of its portfolio of 190 outlets.

Yesterday, Bay Restaurant agreed its second financial rescue in as many years, with banks agreeing a new 150 million pound loan in exchange for taking a stake in the company. The banks providing the rescue financing were Iceland’s Kaupthing and Germany’s Commerz – hardly strangers to rescues themselves.

Keeping score: biotech, Chinese debt and European ECM

Here are some highlights from this week’s Thomson Reuters Investment Banking Scorecard.

Medarex boosts biotechnology M&A to $5.3 billion

Bristol-Myers Squibb’s $1.9 billion acquisition of Medarex lifted the volume of biotechnology M&A to $5.3 billion for year-to-date 2009, a 90% decrease from 2008 levels. Last year’s total was bolstered by the $46.7 billion acquisition of Genentech by Roche Holding. Excluding the Genentech transaction, biotechnology M&A volume is down 22% over 2008 levels. By number of deals, mergers in the sector are up 15% over last year.

With their advisory roles on the Medarex transaction, JP Morgan and Goldman Sachs top the ranking of biotechnology advisors for year-to-date 2009.

Keeping score: UK targets, U.S. debt, industrial equity

If it’s Friday it must be Thomson Reuters Investment Banking Scorecard day. There’s a slogan for you. Anyway, here are the highlights:

Industrial Sector ECM Shows Increase Over Last Year

Bolstered by this week’s follow-on offering from Japanese airline services provider All Nippon Airways for $1.5 billion, total equity capital markets activity across the industrials sector reached  $26.5 billion, a 2% increase from the same period last year when volume was $25.9 billion.

Other large equity offerings this week came from Asian issuers including $5.5 billion from Japan’s Mizuho Financial and $1.5 billion from India’s Sterlite Industries, bringing weekly volume for the region to $9.8 billion, the second biggest week this year.

Carrying a heavy burden

Library photo of farmers carrying paddy stalks during a harvest at a field in Deli Serdang district of the Indonesia's North Sumatra province June 30, 2009. Indonesia's statistics bureau has projected 2009 unmilled rice output to rise 1.13 percent to 60.93 million tonnes, or the equivalent of around 38 million tonnes of milled rice. REUTERS/Y.T Haryono (INDONESIA AGRICULTURE FOOD) British petrochemicals giant Ineos today announced it has received the overwhelming support of its lenders for proposals to ease the terms on much of its 7.5 billion euro debt load.

The deal leaves the company’s debt burden untouched while lenders will accept a back-dated increase in interest payments as well as a one-off fee.

The company spent months preparing a new business plan and discussing options with lenders and financial advisers. They correctly predicted that lenders would have little appetite for a more severe restructuring, such as asking lenders to write off debts in exchange for an equity stake.

What is an asset worth if no-one wants to buy?

car-washValuation issues mean extra work for financial advisers as they try to restructure the debts of struggling European companies.

With few bidders for companies — as specialist distressed investors continue to sit on their hands — many company valuations are “subjective”, one restructuring expert told me earlier today.

Such uncertainties have serious consequences. An argument has broken out between different groups of creditors to car cleaning firm IMO Car Wash, as senior lenders seek to take control of the company via a debt-for-equity swap.

Check Out Line: Pier 1 profits despite falling sales

Check out how a little debt can help that bottom line.

Pier 1 posted a profit on Thursday, even though sales fell 9 percent overall and 7.5 percent at stores open at least a year.

times-square1How’d they do it?  Well, recording a $48 million gain on the repurchase of debt was surely a help.  Even excluding that gain, the loss per share topped analysts’ forecasts.  Inventory was down a bit and while sales fell, the decline was smaller than Wall Street anticipated.

The retailer, like others, has been doing what it can to cut costs as shoppers shy away from those home furnishing extras like outdoor furniture.  Who knows, maybe Times Square will want to replenish its supply with some of Pier 1′s goods.

“Big Loan”, big problem

Rob “Big Loan” Verrone was the banker with the big name behind the 2007 acquisition of now-bankrupt Extended Stay.

His nickname was trumpeted in the hotel chain’s 2007 press release detailing the deal — in retrospect perhaps not the best quality to shout about.

Big Loan, described as one of three who provided the mortgage and mezzanine financing, moved on from Wachovia according to a Wall Street Journal report last year, and we couldn’t immediately track him down for comment.

Keeping score: Rio, real estate, rising rates

This week’s Thomson Reuters “Investment Banking Scorecard” is out. Here are the highlights:

“BHP/Rio Tinto Deal Changes Global M&A Landscape

“The announcement of a joint venture between Australia’s BHP Billiton and domestic rival Rio Tinto last Friday ranks as the second largest worldwide deal this year and may prove fruitful for some investment banks.  Advisors Gresham Partners, Lazard, Morgan Stanley, and Goldman Sachs will advise on the deal, translating to valuable deal activity in a year where M&A volume is down 43%.  Earlier this year, Chinalco announced a multi-continent $19 billion investment in Rio Tinto, which was withdrawn as a result of the new mega-deal.  Of the seven banks on the initial Chinalco deal, only Morgan Stanley, ranked first for worldwide M&A year-to-date, secured a role on the BHP deal.

“Real Estate Equity Capital Markets Activity up 85%

“Equity capital markets offerings from real estate issuers have soared so far in 2009, while activity in the M&A, DCM, and loans segments remains down from 2008.  Real estate ECM volume is up 85% over last year at $36.5 billion.  Activity in the Americas accounts for 44.7% of the total volume across the sector, followed by Asia (including Japan) with 36.6% and Europe with 18.4% share of the market.

Chrysler lawyer’s e-mails show doubts on speed of deal

Opponents seeking to slow down Chrysler’s blitz through bankruptcy court received unexpected support for their argument on Wednesday: Chrysler’s lead attorneys. 
    An email that turned up during discovery showed that Jones Day attorneys tried to discourage the U.S. government from setting a June 15 deadline for completing a sale of most of the automaker’s assets to a group led by Fiat.
    A lawyer for a group of Indiana pension funds, which oppose the sale, read the email in court which showed Jones Day attorneys said the tight schedule would undermine the credibility of their case, called the time frame a mistake and said it would “stuff the judge” by forcing such a rapid hearing schedule.
    “The debtor lost that one,” said the Indiana fund’s attorney, Glenn Kurtz of White and Case, referring to Jones Day recommendation regarding the deadline.
    Judge Arthur Gonzalez overruled Jones Day attorneys who objected to entering the email, which the U.S. Treasury released during discovery, because it was not meant to be public and tapped into Chrysler’s legal strategy.

-By Tom Hals and Emily Chasan

Keeping score

A course worker posts names on a scoreboard before the start of first round play at the 2009 Masters golf tournament in Augusta

A few nuggets from the weekly Thomson Reuters “investment banking scorecard”:

U.S. investment-grade debt is enjoying a busy May (and the month’s not even over yet). Offerings total $70.9 billion from 61 issues so far this month, the largest monthly volume since last May’s record $143.3 billion.

Bolstered by energy and power companies, Indian syndicated lending volume totals $14.1 billion year-to-date. That makes it one of the few nations to experience a year-over-year volume increase, up 9% over 2008.

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