Pte Equity- TPG and Apollo

Profit in Adversity - Wall St Debt specialists back in demand. FT ~ 10Aug
When Michael Milken entered prison in 1991 from Drexel Burnham Lambert in LA, HY had revolutionised the mkt, developing a mkt for non-IG new companies and for corporate raiders who dont hv money. He is still banned by the mkt and 2nd career as philanthropist. Ex-colleagues at Drexel are applying lessons in 1980s to navigate the mkt and generate returns from risky debt. Unable to borrow money from the banks to take large companies private, they are looking to buy bombed-out debt at discount prices with the hope that a recovery will generate their customary big profits.

Turmoil has put a premium on credit analysis skills- the ability of companies to pay back their debt under a variety of economic scenarios. Apollo, Leon Black, was the first to recognize the significance of the deal. Apollo and GSO had bot $4.2bn LBO of the Clear Channel Communications from CSFB, DB and RBS. GSO was formed in 2005 by 2 ex-Drexel, Bennett Goodman and Tripp Smitth along with Doug Ostover, who worked in DLJ bot by CSFB in 2000. GSO had bot $13bn of debt with template for selectively buyout deals at bargain prices. They expect pte equity style high returns on the safest, most snr debt. Banks are still holding $500bn of loans and junks bonds ($40bn). Most of the buyout deals had few of the std terms and conditions - borrowers had the right to cease paying int in cash and issue more debt, with the slightest waiver fees. GSO, TPG and Apollo had been really active.

Its largest deal, it bought debt in Alltel at the same hefty discount and will be paid off at 100 cents on the dollar, as the telco company’s owners – GS and TPG – sold it to Verizon two months later. Another big payday came when GSO bought debt of Tribune, a troubled newspaper, at 66 cents on the dollar, watched it rise to 75 cents when Tribune sold Newsday, one of its crown jewels, and quickly sold out.

GSO locked in funding for 12 yrs. We hv learnt that there can be zero liqudiity when you most need it. We saw how quickly a firm can go down. We hv all lived through cycles.

"The last thing you want is to be big and junior in the capital structure," says Mr New. "If you are too early, you lose money." Last month, GSO bought Stolle Machinery, which makes the machines used to produce beverage and food cans. GSO also provided the bulk of the debt for the buy-out of Weather Channel by its parent, Blackstone, acting in a group with Bain Capital and NBC Universal. Also looking to clear out b/s for dresdner and csfb and take adv of the gap left banks to buy companies.

Apollo Management has pursued a similar brand of credit-oriented analysis. Along with Blackstone-owned GSO, it has been the most aggressive in buying up non-distressed debt from distressed sellers at bargain prices, steering clear of sectors such as car parts, automakers and airlines.

In a letter to investors five months ago, Mr Black boasted that only one of his investments, Linens-N-Things, had not worked out according to plan. Since then, however, Apollo’s portfolio of private-equity investments has taken a turn for the worse, with fashion retailer Claire’s Stores, property broker Realogy and Harrah’s Entertainment all ailing.

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Chinese Property ~ Reuters article

This is such a slow death ~ Xover hitting over 1000 and every single hedge fund is setting up gates for their redemption.

Some key extracts from the article
- Month long rally in prop shares could end soon.
- Govt stimulus plan subbed developers.
- Govt plan for social low income housing and to secure ind like cement and steel.
- Chinese prop 10%GDP, recovery in 2001 cos of supply glut,consumer,lending cond.
- CSFB exp drop in further 10~15% in 2009.
- $7bn hot money from property funds in 2007.
- Vacancy in office space to go to 18% from 12%.
- LT trend of urbanisation slowing .. 8m flock to cities but may not do so now.

BEIJING/HONG KONG, Dec 3 (Reuters) - A month-long rally in Chinese property shares could end soon and fresh losses may be in store after a massive government economic stimulus plan snubbed developers who are struggling to survive slumping home sales.

"The winter has really come, and it'll last one or two years," Zhang Baoquan, chairman of Beijing-based developer Antaeus Group, said at a conference in Beijing. "Developers will get no real benefit from the government money," he added. "It's for social (low-income) housing, to secure industries like cement and steel." Rampant real estate speculation, which sucked in billions of dollars in foreign capital last year, led China's stock markets into a bubble in 2007 that burst this year. The Shanghai composite index .SSEC has most more than 60 percent of its value in 2008.

Still, property stocks listed in Shanghai have rallied 32 percent since Beijing unveiled a $585 billion fiscal stimulus package and China's central bank cut rates by an aggressive 108 basis points in the last month. The sector's rise has exceeded the broader market's 7 percent increase in that time.

But recent gains may be a false hope, industry experts and money managers said. A lasting recovery in China's property market, which makes up 10 percent of the economy, could be as far off as 2011 as developers deal with a glut of supply, consumers put off big purchases and tight lending conditions linger.

Credit Suisse strategists expect property prices to fall a further 10 to 15 percent in 2009. "We suggest investors use short-term technical rebounds as exit opportunities to trim their exposures to the sector. Long-term investors should reenter the market only when a more sustainable recovery trend is confirmed, which could come asearly as in the second half of 2009," they said in a research note.

Beijing's stimulus package is focused on infrastructure and building 4 million low-income housing units, projects that are eschewed by big developers because of their low profit margins. Fat-cat developers also garner scant central government sympathy because of big profits they made during a speculative boom.

After a five-year bull run, home sales slumped at the end of 2007, especially in southern cities like Guangzhou and Shenzhen, as government efforts to cool the overheated sector took effect. As a result, unsold housing inventory has piled up to about 20 months' worth of sales, economists say, a bigger oversupply than in the United States, where it is about 11 months.

Nick Yao, a fund manager with Aberdeen Asset Management in Hong Kong, had been trying to find opportunities to tap growth in Chinese property stocks for a long time.

But with many developers struggling with high debts, he decided to take what he called a "conservative" approach by owning Hong Kong-based developers with some commercial Chinese exposure, such as Hang Lung Properties (0101.HK: Quote, Profile, Research, Stock Buzz), Swire Pacific (0019.HK: Quote, Profile, Research, Stock Buzz) and Sun Hung Kai Properties (0016.HK: Quote, Profile, Research, Stock Buzz).

"Hong Kong companies have been through a few cycles of their own so are more conservative and more capable of managing a downturn," Yao said. "And their balance sheets tend to be stronger, with the cash flow they can generate from Hong Kong."

FOREIGN MONEY
Aside from Hong Kong developers, foreign property funds invested about $7 billion in China in 2007, according to KPMG.
Earlier this year, MGPA, a private equity real estate firm partly owned by Australia's Macquarie Group Ltd (MQG.AX: Quote, Profile, Research, Stock Buzz), raised a $3.9 billion fund to invest in Asia, some of which was leveraged and spent on Chinese commercial property.

However, the fund is bit more gun shy on China now and would rather wait until the second half of next year. "Now that property values are falling, it's certainly coming back on our radar, but I think it's too early go in and buy at the moment," said Simon Treacy, the firm's Asia chief executive.

Treacy expected vacancy rates in office buildings to rise to 18 percent in the next year from around 12 percent now. Investors in Chinese developers, and foreign funds run by institutions like ING (ING.AS: Quote, Profile, Research, Stock Buzz), Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), are betting on a long-term trend of mass urbanisation, which has seen some 8 million Chinese flock to cities each year.

However, a sharp slowdown in export manufacturing, particularly in the Pearl River Delta, will probably slow the migration to big cities. And most rural people cannot afford the downpayments on homes in the city, said Ha Jiming, chief economist at China International Capital Corp (CICC).

"People want to work in the cities for 10 years and then go and build their own house back in their village," Ha said. Of course there are China property bulls out there. Adrian Ngan, executive director of research at CCB International in Hong Kong, has been telling investors to buy mid-cap residential developers like KWG Property Holdings (1813.HK: Quote, Profile, Research, Stock Buzz), CC Land Holdings Ltd (1224.HK: Quote, Profile, Research, Stock Buzz) and Shimao Property Holdings Ltd (0813.HK: Quote, Profile, Research, Stock Buzz).

He said valuations have become attractive, with some stocks trading close to book value, and local governments will likely be more flexible on building regulations to put people to work.

That developers would turn to provincial government connections is perhaps not surprising given Beijing's unspoken message to property tycoons, as it tries to focus on shoring up employment -- fend for yourselves.

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Live within yr Means

Lehman has been the No.1 biggest company to go bankrupt. This week, I am looking at Citi going under ~ 2 trillion in assets and followed by GM and Chrysler. Obama looking to create 2.5mm jobs in 2011 in schools, infrastructure spending, alternatives energy eg solar and wind farms. Think it is time for us to reprice risk premium. I like the following article written by Goh Eng Yoew, ST Mkt correspondent.

Something good will come from these bad times. It is worth noting that during the Great Depression, formidable businesses were being established in the United States, such as Walt Disney, IBM and Hewlett-Packard. These turned into the global household names they are today. People will have to start living within their means, learn how to preserve capital and reduce debt.
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Many have described the current upheaval as the worst financial crisis since the Great Depression 80 years ago. Let's put things in perspective. The few people who still remember those bleak times have observed that such talk is quite exaggerated. One 86-year-old businessman here recalled that during the Great Depression which occurred during his childhood, many people went hungry in the streets as the rubber trade in Singapore crashed. Yet, the British colonial authorities did not lift a finger to help them. In contrast, the Government is already rushing to put together a series of measures to combat the current downturn.

But the vast destruction of wealth now under way in global financial markets is not something that happened overnight. It may actually be the result of many years of risk-taking gone awry. The problem has been simmering beneath a surface calm during the last couple of boom years, but no one paid any attention to it, given the obsession with instant gratification. It is easy to get carried away and pin all the blame on the mortgage crisis in the United States. But look around us. Didn't we suffer from similar excesses as well? Until recently, some banks literally made it a virtue to approve risky unsecured personal loans within 24 hours - never mind the credit checks they are supposed to do on the borrower. Even while the super-bull run was hitting its peak early last year, there were already warning signs that the stock market might come crashing down. These signals were mostly ignored.

Companies bled dry by years of losses, such as Rowsley, Equation and Ban Joo, were valued at more than $200 million each even though they were literally shell firms with few viable assets left in them. In May last year, one audacious China solar start-up even wanted to inject its fledgling operations into Rowsley at a hefty price tag of $2.7 billion. While it offered investors a $300 million profit guarantee for each of the financial years ending June 30, 2008, 2009 and 2010, it gave precious few details on how it intended to fulfil its side of the mega-size bargain. Small wonder, then, as the US sub-prime crisis started to bite, these counters tumbled like tenpins as the sexy stories surrounding them turned sour. They have since fallen to about one-tenth of the prices reached during the feverish penny stock price run-up in July last year. It is now quite possible that we will have a few lean years ahead of us - as the excesses are being drained out of the system - but that is nothing to fear, really.
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'Nothing is moving. The decline is not confined to the US market; Europe, Japan are also down significantly, with slowdowns in the emerging markets as well.' The situation is most dire in the US, the biggest car market in the world. Sales there have plummeted to their lowest in 17 years, putting General Motors, Ford and Chrysler on the brink of disaster.

The Big Three are asking for US$25 billion (S$38 billion) in federal assistance - which was rejected by Congress - with GM and Chrysler warning that they could go under in weeks. Europe has suffered six consecutive months of declining car sales, with a drop of almost 15 per cent last month. Renault, Peugeot, Opel, Mercedes-Benz and Audi have announced either cutbacks or layoffs, and in many cases, both.

Japan, home of some of the world's most efficient, affordable cars, has not been spared. Toyota, Honda, Mazda and Nissan have all announced production cutbacks and staff layoffs in domestic as well as overseas plants. The slowdown of the auto industry is potentially devastating for not just the carmakers, but also the countries they operate in. A report by the Centre for Automotive Research shows that if one of the Big Three goes bankrupt, the US could lose 2.5 million jobs and US$125 billion in personal income in the first year alone.

In Germany, where the auto industry is estimated to provide one in eight jobs, a slowdown for carmakers will also hit the electronics, transport, chemicals, engineering and advertising sectors. Even countries such as Thailand and South Korea have already been hit by production cuts.

But what ails the industry? Most firms lay the blame squarely on the current economic crisis, dropping demand and weak consumer confidence. Not only are cars seen as luxury items that people can go without in these lean times, but loans from banks are also drying up.

'That's in nobody's business plan,' Ms Kimberly Rodriguez, an automotive specialist with global accounting firm Grant Thornton, told Time magazine. 'The best planning in the world cannot survive that fluctuation.'

But others blame structural weakness in the carmakers, especially in the US. Long criticised for their inefficiencies, US carmakers are coming under greater fire for their cost management. Much of the bailout money that they want, for instance, will go to keeping overpaid workers in their jobs, their pensions and their retirement benefits.

Critics also slam the US automakers for failing to develop smaller, fuel-efficient cars, and concentrating instead on fuel-guzzling sport utility vehicles - whose sales have been devastated by high fuel prices.

Despite all this, some carmakers are keeping their hands firmly on the gearshift, ready for a comeback.

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Timeline of Events leading to Mkt crisis

Oct. 13 (Bloomberg) -- The following is a timeline of events that led to the current global financial crisis. It all started on 5 Mar 2007...

March 5, 2007: HSBC Holdings Plc, Europe's biggest bank by market value, says the U.S. subprime market is "unstable" and now in a "downturn", making it the main drag on company earnings....

March 29, 2007: HSBC Chairman Stephen Green says the U.S. subprime mortgage services division will be ``run down significantly'' as the bank tries to recover from loan losses.

April 2, 2007: New Century Financial Corp., which specialized in loans to people with poor credit, files for bankruptcy protection after being overwhelmed by customer defaults.

July 17, 2007: Investors in two Bear Stearns Cos. hedge funds that invested in collateralized debt obligations backed by subprime mortgage loans are told there is no value left in the funds, wiping out $1.6 billion originally invested.

July 19, 2007: Federal Reserve Chairman Ben S. Bernanke tells the U.S. Senate's Banking Committee that there may be as much as $100 billion in losses associated with subprime mortgage products.

Aug. 9, 2007: BNP Paribas SA, France's biggest bank, halts withdrawals from three investment funds because it can't ``fairly'' value their holdings, as concern over U.S. subprime mortgage losses roils credit markets.

Aug. 17, 2007: The Fed lowers the interest rate it charges banks and acknowledges for the first time that an extraordinary policy shift is needed to contain the subprime-mortgage collapse.

Aug. 22, 2007: Countrywide Financial Corp., the biggest U.S. mortgage lender, sells $2 billion of preferred stock to Bank of America Corp., the biggest U.S. bank by market value, to bolster its finances.

Sept. 7, 2007: The three-month London interbank offered rate, or Libor, the rate banks charge each other for dollars, rises to a seven-year high, signaling efforts by central banks to free up lending are sputtering.

Sept. 14, 2007: Northern Rock Plc says the Bank of England agreed to provide emergency funds to ease a ``severe liquidity squeeze'' sparked by U.S. subprime mortgage defaults following the first run on a British bank in more than a century.

Oct. 9, 2007: U.S. stock indexes rally to records for the second time in a month after minutes from the Fed allayed investor concern that the U.S. economy is heading for a recession. The Dow Jones Industrial Average and the Standard & Poor's 500 Index set all-time highs, with the Dow closing at 14,164.53.

Oct. 30, 2007: Merrill Lynch & Co. ousts Stan O'Neal as chairman and chief executive officer after reporting a $2.24 billion loss, six times bigger than a forecast the firm offered just three weeks earlier.

Nov. 4, 2007: Citigroup Inc. CEO Charles ``Chuck'' Prince, who took over in 2003, steps down after the largest U.S. bank by assets increased its estimate for mortgage-related writedowns.

Jan. 11, 2008: Bank of America, the biggest U.S. bank by market value, agrees to buy Countrywide for about $4 billion.

March 14, 2008: Bear Stearns Cos. gets emergency funding from the U.S. Federal Reserve and JPMorgan Chase & Co. as a run on the bank depletes its cash reserves in three days.

March 16, 2008: JPMorgan Chase agrees to buy Bear Stearns for 7 percent of its market value in a sale brokered by the Fed and the U.S. Treasury.

April 1, 2008: Lehman Brothers Holdings Inc., the fourth- largest U.S. securities firm, raises $4 billion from a stock sale to quell speculation it's short of capital.

April 9, 2008: Washington Mutual Inc. rejected an offer from JPMorgan Chase to buy it for as much as $8 a share, or $7 billion, before announcing it received a $7 billion capital infusion from a group led by TPG Inc., the Wall Street Journal reports, citing people familiar with the situation.

April 28, 2008: The U.S. Internal Revenue Service starts distributing tax rebates electronically as part of a $168 billion economic stimulus plan.

May 31, 2008: Bear Stearns ceases to exist as the acquisition by JPMorgan is completed.

June 20, 2008: The Dow closes below 12,000.

July 11, 2008: IndyMac Bancorp Inc., the second-biggest independent U.S. mortgage lender, is seized by federal regulators after a run by depositors depleted its cash.

July 31, 2008: Nationwide Building Society, Britain's fourth-biggest mortgage lender, says U.K. house prices declined the most in almost two decades in July and consumer confidence fell to a record low as the economy edged closer to a recession.

Aug. 12, 2008: UBS AG, Switzerland's biggest bank, announces plans to separate its investment banking and wealth management units after mounting subprime writedowns prompt rich clients to withdraw funds for the first time in almost eight years.

Aug. 31, 2008: Commerzbank AG agrees to buy Allianz SE's Dresdner Bank for 9.8 billion euros ($13.3 billion) in Germany's biggest banking takeover in three years.

Sept. 7, 2008: The U.S. government seizes control of Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies.

Sept. 15, 2008: Lehman Brothers Holdings Inc. files the largest bankruptcy in history, and Bank of America agrees to acquire Merrill Lynch for about $50 billion.

Sept. 16, 2008: American International Group Inc. accepts an $85 billion loan from the Fed to avert the worst financial collapse in history, and the government takes over the company.

Sept. 18, 2008: Lloyds TSB Group Plc, the U.K.'s biggest provider of checking accounts, agrees to buy HBOS Plc, Britain's largest mortgage lender, for 10.4 billion pounds ($18.1 billion).

Sept. 21, 2008: Goldman Sachs Group Inc. and Morgan Stanley receive approval to become commercial banks regulated by the Fed as tight credit markets forced Wall Street's two remaining independent investment banks to widen their sources of funding.

Sept. 23, 2008: Goldman Sachs says it will raise at least $7.5 billion from Warren Buffett's Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm's borrowing costs and hurt its stock.

Sept. 26, 2008: The U.S. Securities and Exchange Commission ends a program that monitored securities firms' capital after Morgan Stanley and Goldman Sachs, the only companies remaining under its jurisdiction, became banks overseen by the Fed. Sept. 26, 2008: The SEC's inspector general releases a report asserting that the agency failed in overseeing Bear Stearns because it knew the firm had ``high leverage'' and was too concentrated in mortgage securities before its forced sale to JPMorgan Chase & Co.

Sept. 26, 2008: Washington Mutual Inc. is seized by government regulators and its branches and assets sold to JPMorgan Chase in the biggest U.S. bank failure in history.

Sept. 27, 2008: Washington Mutual files for bankruptcy protection.

Sept. 28, 2008: Fortis, the largest Belgian financial- services firm, receives an 11.2 billion-euro rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporates.

Sept. 29, 2008: The House of Representatives rejects a $700 billion plan to rescue the U.S. financial system, sending the Dow Jones Industrial Average down 778 points, its biggest point drop ever. Citigroup agrees to acquire the banking operations of Wachovia Corp. for about $2.16 billion after shares of the North Carolina lender collapsed under the weight of overdue mrtgages. Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, is seized by the government. The Dow closes below 11,000.

Sept. 30, 2008: Dexia SA, the world's biggest lender to local governments, gets a 6.4 billion-euro state-backed rescue as a worsening financial crisis forces policy makers across Europe to aid ailing banks. Ireland says it will guarantee its banks' deposits and debts for two years.

Oct. 1, 2008: The U.S. Senate approves a revised version of the rescue plan that was refashioned to entice enough votes for passage.

Oct. 3, 2008: The House passes the revised version of the rescue plan. Wells Fargo & Co., the biggest U.S. bank on the West Coast, agrees to buy all of Wachovia for about $15.1 billion, trumping Citigroup's government-assisted offer. U.S. President Oct. 5, 2008: BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium and Luxembourg after an earlier government rescue failed to ensure the company's stability as the global credit crisis worsened.

Oct. 6, 2008: The Fed says it will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets as the credit crunch deepens. The German government and the country's banks and insurers agreed on a 50 billion euro rescue package for commercial property lender Hypo Real Estate Holding AG after an earlier bailout faltered. The Dow Jones Industrial Average falls below 10,000 for the first time in four years.

Oct. 9, 2008: Citigroup walks away from its attempt to buy Wachovia, handing victory to Wells Fargo. The Dow Jones falls below 9,000 for the first time in five years and briefly dips below 8,000.

Oct. 11, 2008: U.S. Treasury Secretary Henry Paulson indicates that pumping government funds into banks is a priority, saying financial markets will remain volatile.

Oct. 12, 2008: European leaders agree to guarantee bank borrowing and use government money to prevent big lenders from going under, trying to stop the financial hemorrhage and stave off a recession.

Oct. 13, 2008: The Fed leads an unprecedented push by central banks to flood the financial system with as many dollars as banks want, backing up government efforts to revive confidence and helping to reduce money-market rates. Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc get an unprecedented 37 billion-pound bailout from the U.K. government as Germany, France and Spain prepare similar rescues. Germany says it will provide as much as 500 billion euros in loan guarantees and capital to bolster the banking system, the country's biggest government intervention since the Berlin Wall came down in 1989.

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