-----
Nickolas W. Jekogian
917 763 3500
Jekogian@NWJcompanies.com
From: Jonathan Colton <jlcolton@me.com>
Date: Mon, 22 Sep 2008 04:51:19 -0400
To: Nick Jekogian<jekogian@nwjcompanies.com>; dmclain@nwjcompanies.com<dmclain@nwjcompanies.com>
Subject: (BN) Schwarzman Raises the Bar, Buffett Wields Cash in Distressed-Assets Glut
Bloomberg News, sent from my iPod.
Schwarzman Raises Investing Hurdle, Buffett Uses Cash
Sept. 19 (Bloomberg) -- Bankrupt Lehman Brothers Holdings Inc. and government-seized American International Group Inc. top the list of distressed sellers seeking buyers for at least $1 trillion of assets. So far, bargain hunters aren't biting.
The same uncertainty that erased $3.1 trillion from global stocks in the first four days of this week has all but paralyzed the market for unpaid corporate debt, non-performing mortgages, degraded securities and repossessed real estate. Before takeovers are pursued that help troubled companies bolster capital and pay off creditors, hedge funds and buyout firms that have raised $163 billion this year face roadblocks such as a lack of financing.
``We're raising the hurdles for putting money out there because there are going to be increasingly better opportunities,'' Blackstone Group LP Chief Executive Officer Stephen Schwarzman said in an interview. ``You're most aggressive when you're coming off the bottom.''
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben S. Bernanke and members of Congress pledged yesterday to fill the void by moving bad debt to a government institution that would sell it.
``The goal of that would be to assure people that there is a way to price the assets,'' said Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York. ``Then private investors would gain courage and come back more actively in the markets.''
Berkshire Hathaway
The winners from Lehman's bankruptcy and AIG's government bailout will be investors such as billionaire Warren Buffett who can buy without borrowing and, in some cases, afford to hold onto their purchases for as long as five years without cashing them in, said Thomas Priore, chief executive officer of New York-based ICP Asset Management, which originated and oversees $13 billion in collateralized debt obligations.
Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. has been involved in eight acquisitions since October, including yesterday's $4.7 billion purchase of Constellation Energy Group Inc. in Baltimore. That compares with six in the previous 12 months, when Berkshire's largest acquisition cost $350 million. The deals were possible because the company had cash on hand totaling $31.2 billion at the end of June.
Pre-Crisis Position
``The ability to raise capital, no matter who you are, has changed dramatically,'' Richard Friedman, global head of merchant banking at Goldman Sachs Group Inc., said Sept. 16 at the Dow Jones Private Equity Analyst conference in New York. ``People are winning by not losing at the moment. It's going to be eerie for a while.''
Priore estimates financial firms will have to sell $1 trillion of assets worldwide to make up for the shortfall between the $518 billion they have lost or written down, and the $364 billion in new money they've been able to raise.
If the average bank has borrowed 10 or 11 times that amount, multiplying by the roughly $100 billion difference means ``that's $1 trillion worth of assets they need to shed to get back to the position they were in pre-crisis,'' Priore said.
Funds run by Washington-based Carlyle Group, Sailfish Capital Partners LLC of Stamford, Connecticut, and Peloton Partners LLP in London have shut down because of mortgage- related losses, illustrating the perils of jumping in too early.
Hedge Fund Losses
Hedge funds that invest in distressed assets and corporate restructurings have lost 4.9 percent so far this year, compared with gains of 5.1 percent for all of 2007 and 15.9 percent in 2006, according to Hedge Fund Research Inc. in Chicago. Hedge funds are private pools of capital whose operators receive management and performance fees.
Sovereign wealth funds, money controlled by countries or their rulers, were among the first called upon by banks starting last year to shore up their capital. The funds responded by investing more than $46 billion. The share price declines of the beneficiaries, including New York-based Merrill Lynch %26 Co., Citigroup Inc. and Morgan Stanley, mean government-owned funds, such as Korea Investment Corp. and the Government of Singapore Investment Corp., have losing positions.
The pain prompted at least one fund, Mubadala Development Co., the Abu Dhabi government-owned investment company, to withhold any new lifelines to the U.S. financial services industry, Waleed al-Muhairi, Mubadala's chief operating officer, said in a telephone interview.
``In the U.S., it's typically new investors who come in and they wipe out older ones,'' said Yngve Slyngstad, executive director of Norges Bank Investment, which runs Norway's sovereign fund, the world's second-largest.
Savings and Loan
Hedge funds have raised $129 billion to invest in distressed assets and restructurings, data compiled by Hedge Fund Research show. Buyout firms have amassed $33 billion so far this year for distressed assets and are in the process of raising $30.5 billion more, according to London-based Private Equity Intelligence Ltd.
Distressed assets expected to flood the market dwarf what was available to investors following the collapse of the U.S. savings and loan industry in the early 1990s, said Paul E. Johnson, president of Southwest Next Capital Management, a real estate fund in Phoenix.
As mayor of Phoenix from 1990 to 1994, Johnson had a front- row seat when the government closed 747 thrifts, costing taxpayers $140 billion.
Asset Disposal
``For Arizona, 1990 was brutal,'' Johnson said. ``I think with what's going on right now with the financial institutions, this is going to be bigger.''
Resolution Trust Corp., created by the federal government to liquidate assets of failed thrifts in an effort to repay creditors, ended up recovering almost $400 billion from asset sales, its acting chief executive, John Ryan, said when the RTC concluded its operations.
Former Federal Reserve Chairman Alan Greenspan, Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, and Representative Barney Frank, chairman of the House Financial Services Committee, are among those who have called for an agency styled after the RTC to dispose of devalued assets.
``The best answer is to get these assets cleared, reset and get the economy going again,'' Johnson said. ``Even so, we may have done such a colossal job of fooling ourselves it will take years to get out of this.''
22 Cents
Before Lehman filed for bankruptcy Sept. 15, the New York- based securities firm was already selling off pieces of itself. Lehman shed 19 percent of its gross assets in the second quarter, Chief Financial Officer Ian Lowitt said on a June 16 conference call. It was part of the firm's plan to pursue sales in a measured way, Lowitt said at the time.
That process was disrupted July 28, when Merrill Lynch said it sold $30.6 billion of CDOs to an affiliate of Dallas-based Lone Star Funds for $6.7 billion, or about 22 cents on the dollar. Merrill, the world's biggest brokerage firm, agreed Sept. 14 to be sold to Charlotte, North Carolina-based Bank of America Corp.
More than $125 billion of junk bonds, including some of those most likely to default, will mature in the next three years, said Daniel Arbess, founder of New York-based Perella Weinberg Partners' Xerion hedge fund.
When the bonds mature, it will be in a new credit environment in which lenders will be less likely to refinance that type of high-risk debt, Arbess said.
Default Rates
``That creates a very high likelihood of near-record defaults,'' Arbess said.
Default rates for high-yield corporate debt probably will rise to 4.9 percent by the end of this year and 7.4 percent in 2008, according to a Sept. 8 report by New York-based Moody's Investors Service.
Instead of buying now, it's better to wait for terms to improve, Arbess said.
``Our single best asset in the portfolio right now is patience,'' Mark Patterson, chairman of New York-based Matlin Patterson Global Advisors, said at a Sept. 16 investors' conference. Patterson's company has raised $5 billion to buy distressed companies.
BlackRock Inc., the largest publicly traded U.S. money manager with $1.4 trillion in assets, began raising $3 billion this month to buy loans that banks are selling at a loss.
``The deleveraging that's occurring is putting a lot of big asset pools up for sale,'' Laurence Fink, New York-based BlackRock's CEO, said in an interview. ``We're looking at one or more big opportunities.''
Real Estate for Sale
Lehman has a $32.6 billion commercial real estate portfolio, according to Real Estate Alert, a Hoboken, New Jersey-based industry newsletter.
Local developers have been teaming up with private equity firms to buy raw land, lots that have been prepared for building, and unfinished or unsold single-family homes, apartments and condominiums, said David Tobin, principal of Mission Capital Advisors LLC in New York, which advised on about $5 billion of whole home-loan sales in 2007.
``Money wants local knowledge,'' he said.
Last month, Miami developer Jorge Perez, with Lubert-Adler Partners LP, a Philadelphia-based private equity firm headed by Dean Adler, bought 120 new condos on Biscayne Boulevard for $30.3 million, about half the price of individually sold units. It was the largest bulk sale of downtown Miami condos to date.
Falling Prices
Today, IndyMac Federal Bank FSB, the Pasadena, California, mortgage lender that was seized by the Federal Deposit Insurance Corp. on July 11, will put eight pools of California properties on the market, according to IndyMac Director of Corporate Communications Evan Wagner.
``Some of these sales are going on now because we want to sell before prices decline further,'' Wagner said. The goal is to sell the pools by the end of November, he said.
The median price of a new home in the U.S. has fallen 12 percent since the peak in March 2007, according to the U.S. Commerce Department.
That's not far enough for some bargain hunters -- not for homes, not for mortgages, not for corporate debt and not, in Scott Sperling's case, for companies he might want to buy.
``Prices still need to drop dramatically,'' said Sperling, co-president of Thomas H. Lee Partners LP, a closely held leveraged buyout firm in Boston, at the Dow Jones conference. ``Just because prices are down doesn't mean it's cheap.''
To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .
Find out more about Bloomberg on iPhone: http://bbiphone.bloomberg.com/iphone
Schwarzman Raises Investing Hurdle, Buffett Uses Cash
Sept. 19 (Bloomberg) -- Bankrupt Lehman Brothers Holdings Inc. and government-seized American International Group Inc. top the list of distressed sellers seeking buyers for at least $1 trillion of assets. So far, bargain hunters aren't biting.
The same uncertainty that erased $3.1 trillion from global stocks in the first four days of this week has all but paralyzed the market for unpaid corporate debt, non-performing mortgages, degraded securities and repossessed real estate. Before takeovers are pursued that help troubled companies bolster capital and pay off creditors, hedge funds and buyout firms that have raised $163 billion this year face roadblocks such as a lack of financing.
``We're raising the hurdles for putting money out there because there are going to be increasingly better opportunities,'' Blackstone Group LP Chief Executive Officer Stephen Schwarzman said in an interview. ``You're most aggressive when you're coming off the bottom.''
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben S. Bernanke and members of Congress pledged yesterday to fill the void by moving bad debt to a government institution that would sell it.
``The goal of that would be to assure people that there is a way to price the assets,'' said Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York. ``Then private investors would gain courage and come back more actively in the markets.''
Berkshire Hathaway
The winners from Lehman's bankruptcy and AIG's government bailout will be investors such as billionaire Warren Buffett who can buy without borrowing and, in some cases, afford to hold onto their purchases for as long as five years without cashing them in, said Thomas Priore, chief executive officer of New York-based ICP Asset Management, which originated and oversees $13 billion in collateralized debt obligations.
Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. has been involved in eight acquisitions since October, including yesterday's $4.7 billion purchase of Constellation Energy Group Inc. in Baltimore. That compares with six in the previous 12 months, when Berkshire's largest acquisition cost $350 million. The deals were possible because the company had cash on hand totaling $31.2 billion at the end of June.
Pre-Crisis Position
``The ability to raise capital, no matter who you are, has changed dramatically,'' Richard Friedman, global head of merchant banking at Goldman Sachs Group Inc., said Sept. 16 at the Dow Jones Private Equity Analyst conference in New York. ``People are winning by not losing at the moment. It's going to be eerie for a while.''
Priore estimates financial firms will have to sell $1 trillion of assets worldwide to make up for the shortfall between the $518 billion they have lost or written down, and the $364 billion in new money they've been able to raise.
If the average bank has borrowed 10 or 11 times that amount, multiplying by the roughly $100 billion difference means ``that's $1 trillion worth of assets they need to shed to get back to the position they were in pre-crisis,'' Priore said.
Funds run by Washington-based Carlyle Group, Sailfish Capital Partners LLC of Stamford, Connecticut, and Peloton Partners LLP in London have shut down because of mortgage- related losses, illustrating the perils of jumping in too early.
Hedge Fund Losses
Hedge funds that invest in distressed assets and corporate restructurings have lost 4.9 percent so far this year, compared with gains of 5.1 percent for all of 2007 and 15.9 percent in 2006, according to Hedge Fund Research Inc. in Chicago. Hedge funds are private pools of capital whose operators receive management and performance fees.
Sovereign wealth funds, money controlled by countries or their rulers, were among the first called upon by banks starting last year to shore up their capital. The funds responded by investing more than $46 billion. The share price declines of the beneficiaries, including New York-based Merrill Lynch %26 Co., Citigroup Inc. and Morgan Stanley, mean government-owned funds, such as Korea Investment Corp. and the Government of Singapore Investment Corp., have losing positions.
The pain prompted at least one fund, Mubadala Development Co., the Abu Dhabi government-owned investment company, to withhold any new lifelines to the U.S. financial services industry, Waleed al-Muhairi, Mubadala's chief operating officer, said in a telephone interview.
``In the U.S., it's typically new investors who come in and they wipe out older ones,'' said Yngve Slyngstad, executive director of Norges Bank Investment, which runs Norway's sovereign fund, the world's second-largest.
Savings and Loan
Hedge funds have raised $129 billion to invest in distressed assets and restructurings, data compiled by Hedge Fund Research show. Buyout firms have amassed $33 billion so far this year for distressed assets and are in the process of raising $30.5 billion more, according to London-based Private Equity Intelligence Ltd.
Distressed assets expected to flood the market dwarf what was available to investors following the collapse of the U.S. savings and loan industry in the early 1990s, said Paul E. Johnson, president of Southwest Next Capital Management, a real estate fund in Phoenix.
As mayor of Phoenix from 1990 to 1994, Johnson had a front- row seat when the government closed 747 thrifts, costing taxpayers $140 billion.
Asset Disposal
``For Arizona, 1990 was brutal,'' Johnson said. ``I think with what's going on right now with the financial institutions, this is going to be bigger.''
Resolution Trust Corp., created by the federal government to liquidate assets of failed thrifts in an effort to repay creditors, ended up recovering almost $400 billion from asset sales, its acting chief executive, John Ryan, said when the RTC concluded its operations.
Former Federal Reserve Chairman Alan Greenspan, Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, and Representative Barney Frank, chairman of the House Financial Services Committee, are among those who have called for an agency styled after the RTC to dispose of devalued assets.
``The best answer is to get these assets cleared, reset and get the economy going again,'' Johnson said. ``Even so, we may have done such a colossal job of fooling ourselves it will take years to get out of this.''
22 Cents
Before Lehman filed for bankruptcy Sept. 15, the New York- based securities firm was already selling off pieces of itself. Lehman shed 19 percent of its gross assets in the second quarter, Chief Financial Officer Ian Lowitt said on a June 16 conference call. It was part of the firm's plan to pursue sales in a measured way, Lowitt said at the time.
That process was disrupted July 28, when Merrill Lynch said it sold $30.6 billion of CDOs to an affiliate of Dallas-based Lone Star Funds for $6.7 billion, or about 22 cents on the dollar. Merrill, the world's biggest brokerage firm, agreed Sept. 14 to be sold to Charlotte, North Carolina-based Bank of America Corp.
More than $125 billion of junk bonds, including some of those most likely to default, will mature in the next three years, said Daniel Arbess, founder of New York-based Perella Weinberg Partners' Xerion hedge fund.
When the bonds mature, it will be in a new credit environment in which lenders will be less likely to refinance that type of high-risk debt, Arbess said.
Default Rates
``That creates a very high likelihood of near-record defaults,'' Arbess said.
Default rates for high-yield corporate debt probably will rise to 4.9 percent by the end of this year and 7.4 percent in 2008, according to a Sept. 8 report by New York-based Moody's Investors Service.
Instead of buying now, it's better to wait for terms to improve, Arbess said.
``Our single best asset in the portfolio right now is patience,'' Mark Patterson, chairman of New York-based Matlin Patterson Global Advisors, said at a Sept. 16 investors' conference. Patterson's company has raised $5 billion to buy distressed companies.
BlackRock Inc., the largest publicly traded U.S. money manager with $1.4 trillion in assets, began raising $3 billion this month to buy loans that banks are selling at a loss.
``The deleveraging that's occurring is putting a lot of big asset pools up for sale,'' Laurence Fink, New York-based BlackRock's CEO, said in an interview. ``We're looking at one or more big opportunities.''
Real Estate for Sale
Lehman has a $32.6 billion commercial real estate portfolio, according to Real Estate Alert, a Hoboken, New Jersey-based industry newsletter.
Local developers have been teaming up with private equity firms to buy raw land, lots that have been prepared for building, and unfinished or unsold single-family homes, apartments and condominiums, said David Tobin, principal of Mission Capital Advisors LLC in New York, which advised on about $5 billion of whole home-loan sales in 2007.
``Money wants local knowledge,'' he said.
Last month, Miami developer Jorge Perez, with Lubert-Adler Partners LP, a Philadelphia-based private equity firm headed by Dean Adler, bought 120 new condos on Biscayne Boulevard for $30.3 million, about half the price of individually sold units. It was the largest bulk sale of downtown Miami condos to date.
Falling Prices
Today, IndyMac Federal Bank FSB, the Pasadena, California, mortgage lender that was seized by the Federal Deposit Insurance Corp. on July 11, will put eight pools of California properties on the market, according to IndyMac Director of Corporate Communications Evan Wagner.
``Some of these sales are going on now because we want to sell before prices decline further,'' Wagner said. The goal is to sell the pools by the end of November, he said.
The median price of a new home in the U.S. has fallen 12 percent since the peak in March 2007, according to the U.S. Commerce Department.
That's not far enough for some bargain hunters -- not for homes, not for mortgages, not for corporate debt and not, in Scott Sperling's case, for companies he might want to buy.
``Prices still need to drop dramatically,'' said Sperling, co-president of Thomas H. Lee Partners LP, a closely held leveraged buyout firm in Boston, at the Dow Jones conference. ``Just because prices are down doesn't mean it's cheap.''
To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .
Find out more about Bloomberg on iPhone: http://bbiphone.bloomberg.com/iphone
Sent from my iPod
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