Highlights included Wasserstein warning that the global financial crisis will get worse yet, noting that consumer lending and commercial real estate losses are just now beginning. Schwarzman was critical of banks not using the U.S. Treasury funds for their intended purpose of actually administering new loans. Both spoke at length about accounting standards and regulatory issues. Here’s a brief video excerpt from the talk:
According to Blackstone’s Chief Operating Officer, Tony James, the limit on bank financing for leveraged buyouts is about $5 billion, much lower than in the two years preceding August of 2007. Smaller deals are getting done as opportunities abound. Case in point, Blackstone itself has been very active over the past year, investing $8.7 billion in 27 deals since the credit crunch set in.
In a time when some other large cap players are feeling a stinging cold shoulder from edgy institutional LPs (see Madison Dearborn having to cut it’s cap on a new fund, or Blackstone getting a reduced effort from Calstrs for it’s new effort), TPG has amassed a mighty impressive chunk of change to take advantage of opportunities in the currently depressed markets.
TPG plans to use the new fund to invest in a variety of targets, including Asian assets, distressed banks and corporate takeovers.
According to Standard and Poor’s cash-rich Private Equity firms are expected to continue to buy up leveraged loans at a high pace. Leading firms such as Apollo (who’s raising up to £1.1B to buy badly performing loans from European banks), Blackstone (who bought GSO Capital earlier this year), TPG (which has raised a distressed credit fund), Cinven (which recently acquired half of debt advisory and management firm Indicus Advisors), Carlyle (which closed it’s second distressed fund of $1.35B earlier this year) and others have gotten into the game recently at a much greater level than in the past.
After the credit crunch hit last year, the banks were left holding more than $200B of “hung” leveraged loans, which they underwrote on generous terms during the debt boom, and no where to move them. Enter the private equity firms with many fresh off of fundraisings to take the debt off the bank’s hands. However, not everyone (particularly John Moulton of Alchemy Partners), is under the mindset that this is a match made in heaven. Amongst his reasons he points to the limited possibility of returns if a firm uses a fund designated for buyouts to buy up debt as any gain would be capped versus the unlimited upside return potential of equity. Time will tell!
Everyone seems to be jumping on the cleantech wagon (bubble?) and so is Blackstone.
While private equity conditions are beginning to dethaw in Europe, a couple of big names have decided to hold off planned auctions. Blackstone was looking to sell French healthcare provider Groupe Vitalia, and Bridgepoint had hopes of unloading debt collection business 1st Credit Ltd., but neither were getting the bites they were hoping for. Both Vitalia and 1st Credit are in interesting sectors so good things should come to those who wait. Plus, in Europe everything from right before the August holidays gets a going over again in September, so as markets make it past the one year anniversary of the credit crunch these deals will be looked at again in the fall.