Also Noted: Spotlight On... Hedge fund manager in nasty divorce
Today's Top News1. PIK-toggle debt makes a comeback
Back in the days of the private-equity boom, the power in the higher-yielding portions of the fixed income market was held by the issuers. And they were unafraid to wield that power to laden debt with lots of features that were very attractive to them versus investors. A great example: the PIK-toggle notes that allowed the issuer to make payments in kind. If they ran into cash troubles, they could always make coupon payments with additional debt. After the industry stepped back, the conventional wisdom held that the power pendulum had swung back in favor of investors, who were likely to demand more investor-friendly features. While it seemed like the market moved away from the cov-lite ethos for a while, the decline of interest rates ended up changing the dynamic in the market all over again. As rates declined, investors sought yield, which once again shifted power to the issuers. Once again, PIK-toggle notes are back in vogue, according to the Financial Times. "Now, eight years since the PIK-toggle entered the market, companies are again using the esoteric structures, along with a host of riskier borrowing practices associated with the buyout boom that helped inflate the 2006-07 credit bubble," an article notes. "That has fuelled concerns that the return of practices last seen before the financial crisis could be indicative of overheating in credit markets. Last week, Neiman Marcus sold $600m of PIK-toggle notes to help finance its sale by TPG and Warburg to new owners – bringing the evolution of the PIK-toggle full-circle. Other companies to have recently sold PIK-toggle notes include Checkers and Rally's, the drive-through restaurants, and Ancestry.com." But do we stand at yet another inflection point? Maybe not. We may not see a definitive taper from the Fed for quite a while, which might keep bond investors starved for yield. For more: Read more about: Pik Toggle
2. Twitter aims low with IPO price---initially
In the end, Twitter decided to take a modest approach to its IPO. Despite its status as a social media trendsetter, it has set its sights rather low. Some analysts expected a deal that would value the company at up to $15 billion, but the company has set a price range that would give it a market cap of about $11 to $12 billion, according to media reports. It aims to sell about 70 million shares at between $17 and $20 each. DealBook notes that the deal would make Twitter "more than three times as big as one of the first big Internet giants, AOL, but only a fraction of Facebook, the last big Internet initial public offering, which now has a market value of more than $127 billion." The good news is that deal appears to be on track. The road show is start next week, starting in the Baltimore-Washington D.C. area, before hitting major investor centers, such as New York City, Boston, Chicago, San Francisco, Los Angeles and Denver. Retail investors will also be targeted. A video presentation is expected to be available on line. We'll no doubt get some murmurs soon as to what investors think. There are several ways to interpret the initial price range. One could argue that the lower than expected valuation reflects current market conditions. On the other hand, there is always some gamesmanship involved in big-time offerings. Few would be surprised if the underwriters ended up hiking the price range, as a sign of how well the offering is being received. That's the most likely bet. For more: Read more about: IPO, Twitter 3. JPMorgan Chase faces criminal charges over Madoff mess
Executives at JPMorgan Chase have to be wondering right now: when will it end? The massive $13 billion settlement, one that has ostensibly been agreed to, was designed to settle a wide range of mortgage abuse charges. But there are other areas where the banks still seems vulnerable, such as possible crimes linked to the Bernard Madoff scandal. The issue of whether JPMorgan, as Madoff's banker, should have been more proactive from a know-your-customer point of view is not new. The court-appointed trustee tasked with recovering ill-gotten gains for Madoff victims had already made this a big issue. Now, DealBook reports that federal prosecutors are preparing to take criminal action against the bank. That said, the news that a deferred prosecution agreement is being negotiated will irk many. Deferred prosecution agreements have been popular with prosecutors as of late, as many are wary of going after companies with criminal charges, for fear of dealing a de facto death penalty. The Arthur Andersen experience in the post-Enron days still looms large. (The SAC Capital prosecution stands as an exception). A deferred agreement would allow the bank to basically sidestep charges if it agrees to certain changes, like revamping compliance processes, hiring a monitor and the like. Reading the tea leaves, it sounds like the negotiations have hit a critical stage. The prosecutors want to extract as much as possible. To that end, it has to wield a big stick, which in this case means the threat of criminal charges and the implication that the evidence against the bank is strong. In the end, the bank will be wise to settle. The last thing it wants is an embarrassing trial. For more:
Read more about: JPMorgan Chase, Bernard Madoff 4. Bill Gross vs. Carl Icahn on Apple
Activist hedge fund manager Carl Icahn is back in the news after he released a letter he sent to Apple CEO Tim Cook that demanded an aggressive stock buyback. That Icahn is agitating for Apple management to take proactive steps to enhance shareholder value is nothing new. The letter reiterates his view that Apple should immediately launch a stock buyback to the tune of $150 billion, financed completely or in part with debt. And to preempt the idea that he's merely interested in a short-term payoff, he has agreed to withhold his shares from the tender. He wants it known that he's a long-term investor. Apple management seems to treat him that way, as he has been known to dine with the CEO where they talk about shareholder issues. Plenty of others support Icahn in this endeavor. But not everyone sees Icahn as a force for good when it comes to Apple. No less than Bill Gross, of Pimco bond fund fame, issued a critical tweet. "Icahn should leave #Apple alone & spend more time like Bill Gates. If #Icahn's so smart, use it to help people not yourself." It seems a bit personal, suggesting that he move out of investing and into philanthropy. But it makes the story even more mediagenic, which Icahn is all about these days. He has become an avid Twitter guy, and he just recently launched a website to advocate for shareholders. For more: Read more about: Carl Icahn, Apple 5. Bank of America continues to pare mortgage jobs
It's pretty clear that expense management will remain a big story when it comes to big banks. They would love to transform themselves into growth stocks, but that has yet to materialize. The third-quarter earnings season was hardly kind to the top banks, prodding them to reiterate to the market that they aren't letting up on costs. An obvious place for strong action is in the mortgage arena. The reality is that mini-boom that the industry experienced earlier this year has fizzled, leaving management in a mind to cut. We've seen action from all the big players, including Bank of America. But to leave no doubt, the Charlotte-based consumer giant has let it be known that it will lay off more than 3,000 workers in its mortgage division in the fourth quarter. According to media reports, management has informed 1,200 mortgage processors that they'd be laid off. Up to 3,000 more mortgage servicers could also be laid off. Bank of America has also paring a unit that services delinquent loans as credit quality improves. What has emerged is an industry niche that has been rendered transient and perhaps even seasonal. Banks have become more adept at managing their workforces in near-real-time. They can staff up to meet spot demand, and staff down when the demand fizzles. Shareholders no doubt appreciate this ability to react quickly. Employees, not so much. For more: Read more about: mortgages, jobs Also NotedSPOTLIGHT ON... Hedge fund manager in nasty divorce The New York Post offers a story about James Dondero, co-founder of the $18 billion asset manager Highland Capital Management, who may be "trying to sidestep a $5 million pre-nup pact payout to his ex-wife." The divorce battle, which "has seen Dondero's business partner testify for the 33-year-old wife," went to trial this week. It doesn't get more tawdry than this. The article notes that among other things Dondero has been accused by his former partner of trying to shift assets to get out of a huge pre-nup payment. He has chosen to refrain from public comment as all things plays out in court. Article
Company News:
| |||||||||||||||||||||||||||||||||||
Friday, October 25, 2013
| 10.25.13 | PIK-toggle debt makes a comeback
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment