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2. TPG, other PE firms grapple with troubled holdings

When the Justice Department decided to prosecute Bank of America for defrauding the big housing GSEs, it relied on the Financial Institutional Reform, Recovery and Enforcement Act of 1989 (FIRREA), which allows the government to file civil charges for fraud "affecting a federally insured financial institution."

The statute was passed in the wake of the savings and loan crisis. It was the law that established the Resolution Trust Corp. Despite its past use in fighting financial crimes involving loans, however, the statute may prove to be inappropriate for use against Bank of America and other banks.

These banks, which also include Bank of New York Mellon and Wells Fargo have argued that the law cannot be used against them when the only financial institution affected by a fraud is the institution that allegedly committed the fraud.

May 13 looms as a big date in the Bank of America case, as Judge Jed Rakoff has indicated that he will issue a ruling on that day on whether the lawsuit by the Justice Department should be nixed, reports Reuters. He also indicated that he is "troubled" by the use of the statute, which might be making the Justice Department nervous.

Another judge recently ruled, however, that the statute could be used to being charges against Bank of New York Mellon in case involving currency trading. The issue in the Bank of America case is whether Countrywide, which was infamously purchased by the big bank, sold tainted mortgages to the GSEs.

For more:
- here's the article

Read more about: FIRREA, Bank of America
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By Jim Kim

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3. KKR ponders hiring Petraeus

When it comes to troubled private equity holdings, the big firms have been busy as of late, especially TPG.

It has had its hands full with Energy Future Holdings, formerly known as TXU, one of the largest leveraged buyouts ever. Thanks to a precipitous decline in natural gas prices, the Texas power company struggled almost from the get-go. Now, six years after the transaction, TPG, along with KKR and Goldman Sachs, has proposed a prepackaged bankruptcy plan that would get rid of more than $30 billion in debt at a key subsidiary.

TPG, along with Apollo, also has its hands full with a lesser-known effort to salvage their investment in Caesars Entertainment. The two firms took over the company in 2008, just in time to face a painful recession. With operations still flagging, the two firms have launched what Breakingviews calls a "convoluted experiment."

They are "creating Caesars Growth Partners and giving its shareholders the right to buy a piece of the new vehicle through a holding company. Apollo and TPG are kicking in $250 million apiece. Caesars is contributing its Internet operations, handing off about $1.1 billion in debt, and selling the new unit a stake in a casino being developed in Baltimore and the Planet Hollywood in Sin City. Caesars will retain a big economic interest in Growth Partners. In three years, it will have the option to buy back voting control and, after five years, it can liquidate the business. For all the intricacies, the plan hardly makes Caesars any more the master of its fate. It's also a precarious time to value the online division given the uncertainty surrounding U.S. Internet gambling law."

It's worth noting that the Caesars deal hasn't been a total loss for the firms. In fact, it has been quite profitable. One critic of leveraged buyouts has estimated that TPG and Apollo have collected a combined $500 million in transaction and monitoring fees, after investing a combined $61 million in the original deal. That's not a bad return.

For more:
- here's the article

Related Articles:
KKR, TPG aim to avoid bankruptcy of Energy Future

Read more about: LBOs, KKR
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By Jim Kim

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4. New Dell deal proposal seems likely

The Financial Times reports that private equity giant KKR might hire David Petraeus, the former director of the CIA and four-star general. Petraeus is said to have a long relationship with Henry Kravis.

Private equity firms often hire prominent former military figures for their insights and obvious leadership skills, either as advisors or as directors of portfolio companies.

"Founders of the top private equity firms such as KKR are all marked by loyalty and are more likely to consider hiring someone like Mr Petraeus despite the ignominious end of his career in public and military service. Mr Petraeus resigned from the CIA last November after admitting to an affair with Paula Broadwell," who wrote a flattering biography of the four-star general, according to the FT.

While Petraeus and other former military giants would likely prove an asset in many situations, he could also be seen as something of a celebrity hire. The article notes that some private equity firms indeed seem to be taking a new approach to these hires.

"Carlyle, the firm that first developed the model of hiring the well-connected and once-powerful as advisers, has recently tried to distance itself from the political hires that distinguished it in the past," the article noted.

One executives said that private equity firms "are a way station" for retired generals. "They drop by to chat about what is next in their lives."

The key is to make put these high profile hires in positions where they are obviously more than a celebrity hire. A board position on a defense company, for example, might make a lot of sense. A position at companies that do extensive work in global hot spots or offer leading edge technology that might be of interest in the intelligence community would also make sense. There will likely be synergies in a host of areas.

For more:
- here's the article

Read more about: KKR, David Petraeus
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By Jim Kim

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5. New status symbol for women bankers

How low will Dell's stock go?

For the moment, the stock is hovering just below the $13.65 offer from Michael Dell and Silvery Lake, the only formal deal proposal on the table. But it's fair to say that the stock price could go a lot lower depending on how shareholders vote this summer. If shareholders ultimately nix the deal, the stock could plummet dramatically.

"The view on the Street seems to be that if the deal dies, Dell shares will head lower, perhaps as low as $10 or $11," notes Barron's.

As of now, however, it looks the deal will face an uphill slog, even though Blackstone has backed out of bidding and even though Carl Icahn has yet to make a proposal. So if the team of Michael Dell and Silver Lake were wise, they would be reconceiving their offer. Shareholders who were critical of the deal will not fade quietly. That's much is clear.

In order for the deal to be accepted by the board, it must be approved by a majority of Dell shareholders, excluding the founder, who owns 16 percent of the company. It will be interesting to see what Michael Dell and Silver Lake come up with.

Some have suggested that the current deal is a decent one because it offers a slight premium over the market price. But the real issue for the board is appeasing shareholders who bought years ago. These long-term shareholders do not want to be forced to swallow some massive capital losses. In fact, some think the company is worth up to $20 a share. One option would be to revive the idea of a public stub, which would allow them to participate in the upside and hopefully limit their losses over time.

In any case, the deal as now proposed will have to change.

For more:
- here's the article

Read more about: Leveraged Buyout, Dell
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By Jim Kim

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