Archive for December 23rd, 2009

GM Delays European Restructuring

Wednesday, December 23rd, 2009


GM’s European restructuring plan with Opel and Vauxhall will now be delayed until 1Q 2010.  Nick Reilly, CEO of GM Europe, released the news last week.  He admitted that “While it is indeed exciting to see that things are coming together, bear in mind this is going to be one of the largest, most complex industrial reorganizations in European manufacturing in years.”  Thousands of European employee pay packages will be affected by the restructuring.  Last month, GM canceled the sale of a majority in Opel and Vauxhall to a consortium of Russian lender Sberbank and Canadian auto parts manufacturers Magna International, Inc.

GM has indicated it wants some 2.7 billion euros (3.9 billion dollars) in state aid from the various EU countries where it has factories in order to turn the carmaker around. Opel employs around 50,000 people in Europe, half of whom are in Germany.

For more information, refer to GM’s website…

New Securitization – ABS is BACK

Wednesday, December 23rd, 2009


It has taken two long years, but the securitization market is back and deals are being underwritten with and without government backing.  One of the biggest risks to date is the risk of over-regulation.  If this form of financing is no longer attractive to investors, it will have negative affects to consumer ABS performance.

New regulations include accounting rules that require off balance sheet transactions to move back onto a lender’s financial statements.  This will worsen on book leverage ratios and will lead to increased capital requirements.  One regulation in question will require at least 5% of performance risk in securitized loans to remain on a bank’s balance sheet, according to President Obama.

2009 saw $135 billion in issuances, sold with the help of the Federal Reserve’s emergency loan program.  In 2010, $100 billion of credit card securities will mature and companies will turn back to the market to refinance the debt.

Please refer to Reuters for more information…

Selling Volvo: Tough Times for Ford

Wednesday, December 23rd, 2009


Last year Ford put Volvo up for sale, a premier U.S. auto brand known for both its quality and dependability.  The sale was necessary to help Ford raise enough capital to pay down upcoming debt.  The attempted sale was part of a larger strategy to divest of non-core businesses (generating large and lucrative fees for investment bankers) and streamline operations.  At the same time, GM announced that it is abandoning its Swedish Saab unit, after selling some of its assets and intellectual property to another Chinese automaker, Beijing Automotives.  Construction machinery manufacturer Sichuan Tengzhong Heavy Industrial Machinery Corp. also acquired GM’s Hummer Brand this year.

Geely, a prominent Chinese automaker was named the preferred bidder for the franchise in November of 2009.  The deal is expected to close in the first half of 2010.  If the deal is completed, it would be the largest deal ever completed by a Chinese automotive firm.  Geely is rumored to be offering  between $1.8 and $2.3 billion for the firm, which is less than 30% of what Ford paid for Volvo in 1999, $6.45 billion.  The deal should help Geely break into the Western market, a possible turning point for Chinese auto manufacturers.  Already, Chinese annualized auto sales for 2009 have surpassed those in the United States.

The largest obstacle in the deal negotiations is disagreement about how to deal with intellectual property rights and controlling Geely’s use of U.S. technology and safety equipment.  Ford and Volvo have shared technology for over a decade and will continue to share IP in the future.  Much of Volvo’s production is rumored to be moving to China, while development and research will remain in Sweden.  One large question auto analysts have is whether or not Volvo can remain a leader in auto safety and environmental protection after the acquisition.  The Chinese have been looking to develop safety technology for years.  Geely is also looking for $1 billion in financing from the Chinese government before the transaction can get approval.

While losing Volvo could damage Ford’s long term growth potential, Ford itself has made a very impressive turnaround, recently making a $1 billion profit for the first time in years.

The first Volvo was manufactured in 1927.  Today the company employees 20,000 employees worldwide.  In 2008, sales fell by 18.3% to 374,297 units.

Geely was founded in 1986 and started as a refrigerator parts supplier.  It currently employees 12,000 and has an auto production capacity of 300,000 cars per year.  It is China’s largest automaker and is led by its charismatic founder Li Shu Fu, the equivalent of the Chinese Henry Ford.


For more information, please visit BBC news…

For more information, please visit CBC news…

Can you read Mandarin? Please visit Geely’s website…

Novartis to buy Corthera for $120mm

Wednesday, December 23rd, 2009

Swiss pharmaceutical giant Novartis announced on Dec. 23rd that it will buy San Francisco based Corthera for $120mm, giving it the right to develop drugs that prevent heart failure.  The acquisition is still subject to regulatory approval.

Corthera is a privately owned company that has been developing relaxin, a drug that prevents cardiac arrest in patients.  The drug is currently in its third trial phase and targets patients with acute decompensated heart failure.  Novartis wants to complete the development of the drug and plans to put it on the market in the U.S and Europe by 2013.  Corthera’s shareholders could receive additional payments if the drug is successful.  Analysts estimate that these payments could be as high as $500mm.

For those interested in biotech, according to Novartis, Phase II results of the drug relaxin show that it has “vasodilator effects (widens blood vessels), improves breathlessness, reduces cardiovascular morbidity and days in the hospital.”  Relaxin itself is a “recombinant version of a naturally occurring human peptide.  In its natural form, this peptide is responsible for relaxing the female reproductive tract as well as mediating the cardiovascular and renal changes during pregnancy.  In trials, relaxin is administered to hospitalized patients via a 48-hour infusion and has been shown to cause an increase in cardiac output, systemic and renal casodilation, which suggests potential benefits for patents with acute decompensated heart failure. ”

Further, Trevor Mundel, MD, Global Head of Development at Novartis AG claims that “despite a range of current treatment options, acute decompensated heart failure is the leading cause of hospitalization in people over age 65 and remains a major clinical challenge with a high and increasing incidence and substantial morbidity and mortality.  Acute decompensated heart failure, estimated to affect millions of people in the US and in Europe is a condition often associated with chronic heart disease where patients typically suffer from severe shortness of breath (dyspnea) and the heart’s ability to pump blood from the lungs is impaired.  As a result, the lungs become overfilled with fluid, which reduces oxygen uptake.  Diuretics and vasodilators are the current standard of care, but available agents from these classes have been associated with renal impairment, low blood pressure (hypotension) and adverse outcomes.”

Relaxin is expected to further strengthen the position of Novartis and its extensive range of cardiovascular medicines and development portfolio:

  • Diovan (valsartan) – an angiotensin receptor blocker (ARB), is the number one selling hypertension medication worldwide[1], and is indicated in chronic heart failure (NHYA class II – IV). Diovan has been shown to significantly reduce hospitalizations for heart failure.
  • Tekturna/Rasilez (aliskiren) – a first-in-class direct renin inhibitor approved for treatment of hypertension that is also currently in Phase III studies for use in chronic heart failure.
  • LCZ696 - a single molecule dual-acting angiotensin receptor blocker / neprilysin inhibitor (ARNI) that entered Phase III development in late 2009 for systolic heart failure.
  • LCI699 – a Phase II and first-in-class aldosterone synthase inhibitor (ASI) being explored as a potential treatment for heart failure.

Relaxin also further complements the Novartis strategy to expand in acute cardiology care that includes elinogrel, an anti-platelet agent in Phase II development with potential to reduce the risk of heart attack and stroke. Novartis has hospital-based specialty sales forces in place to maximize the commercial potential of this development portfolio.


For more information, please visit the Novartis website….

Reminiscing with the Buyout Industry and EBW: Slowest Summer Ever, Class of ’09

Wednesday, December 23rd, 2009

Everything But Water

As the year 2009 comes to a close, I wanted to take some time to reminisce on some of the more troubling times in the world of buyouts, leveraged finance, and restructuring.

The summer of 2009 was probably one of the slowest in the past decade for leveraged lending and buyout activity.  What we did see was about $12 trillion in government aid since 2008, and a number of quasi-public attempts at purchasing illiquid securities and clearing the market.   The United States saw a wave of bankruptcies, as the corporate bond default rate pushed past 10%, and investors balked, throwing more money at the junk bond (high yield) market in search of returns.   And slowly, but surely, the high yield market began to show signs of life, but not enough to bring back the mega-buyout.  It may be years until we see that type of glorious transaction again.

One interesting deal I encountered sitting on my desk at work at 7:30 in the morning, ice cold Snapple in hand, was the bankruptcy of ‘Everything But Water, LLC,’ the largest U.S. retailer of women’s swimwear.  The company was seeking Ch.11 protection, after being acquired by Bear Growth Capital Partners (the fundless subsidiary of Bear Stearns Merchant Banking, shout out to LA, LLC’s partner from Bear).   Bear Growth Capital Partners acquired a majority stake in EBW in April of 2006, at the height of the private equity bubble.  This was two years after the retailer received its first investment from investment bank Broadsword Partners.   Bear’s acquisition led to the roll up of Water Water Everywhere and Just Add Water, two businesses in the same industry that helped EBW double the size of its operations.  *BSMB is now a part of JPMorgan.

Since September of 2008, Everything But Water had seen a 23% decline in gross sales and had been operating at a loss.  The company had assets of about $58 million and debt of $35 million.   In its prime, EBW operated 70 stores and had over 360 employees selling swimsuits in the $50-200 price segment from Anne Cole and Michael Kors.  Despite layoffs, spending cuts, and tighter inventory controls, the company was not able to improve its free cash flows enough to appease lenders.   EBW tried closing individual stores based on year over year performance and also hired Hilco Real Estate, LLC to help it negotiate rent reductions and lease modifications with its landlords, all to no avail.

Lender D.B. Zwirn insisted that it would accelerate into covenant default if EBW did not enter a comprehensive restructuring that addressed structural issues.

Other higher end consumer retailers backed by LBO shops that filed for bankruptcy included Fortunoff, which was backed by NRDC Equity Partners and Blue Tulip Corp., a Highland Capital Partners backed retailer of gifts.  Bankruptcy after bankruptcy made it very difficult for LBO firms like BSMB to raise and deploy capital.


For more information, please purchase the March 2009 copy of Buyouts Magazine….