"Delay and Pray" is new mantra of PE firms

Rather than addressing the underlying problem of too much debt, private equity firms’ refinancing of debt at their portfolio companies is simply extending the problems out to some point further in the future, say distressed investors.
“Many of these companies are able to service their debt,” said Jeffrey Aronson, managing principal at Centerbridge Partners. “They can pay the monthly Visa bill. The real question is, can they pay it back?”
Tennenbaum seemed to think the answer to that question is no, arguing that when these companies have taken on new debt, it has gone mostly to pay down existing bank debt - not to growth, or to somehow making a company’s model more defensible. And in many cases, companies have been replacing bank debt with high-yield bonds which, while maturing later, have a higher interest rate.
“More cash is going to get clawed up” to pay the interest rates on that debt, Tennenbaum said. He said the new debt is levied at an interest rate of around 10%, versus 4% on the old debt.
“I think this cycle is going to have a long tail,” Aronson said. “You haven’t really seen many of the buyouts hit the wall. At the DBR Restructuring and Turnaround Summit on Wednesday, they used a variety of colorful anecdotes for what PE firms are doing, ranging from the now common “extend and pretend” and “delay and pray” descriptions to some more creative phrases.

“The longer you kick the can down the road, the nastier the can gets,” said Michael Tennenbaum, senior managing partner of Tennenbaum Capital Partners.
“[They] kicked the can down the road, and everyone realizes that it’s the same old battered can,” said Angus Littlejohn, chairman and chief executive of Littlejohn & Co.
Read more at WSJ.

Canadian ABL lenders in the private equity indsutry are having the busiest time of their lives. Business owners still prefer to have the debt rather than give up equity and are using debt to pay off their short term debts and keep going business-as-usual rather.

Private equity motives for a business are helping at GM

“This was not a private equity investment,” Rattner, a co-founder of Quadrangle Group LLC, said at the DBR Restructuring and Turnaround Summit.That’s because the motives of the auto task force were wildly different than those of private equity investors. Instead of aiming to generate a profit, the goal was to lose as little taxpayer money as possible – and to avoid a meltdown in the Midwest.
Steven Rattner may have been hired by the government to turn around the U.S. auto industry in part for his private equity and Wall Street expertise. But the turnaround of General Motors Co. and Chrysler bore little resemblance to a typical PE investment.

“There was a systemic risk not unlike the systemic risk of Lehman Brothers,” Rattner said. The auto industry “could have brought the whole Midwest down with it.”
Given those goals, Rattner thus far is pleased with how the turnarounds have turned out. On GM, he said, the U.S. government’s investment is currently worth between $40 billion and $45 billion, versus the roughly $50 billion that it spent bailing out the company.
Still, Rattner’s private equity inclinations came out at times during the keynote address, especially when he discussed how poorly the company was run before the government intervened.
“This was one of the worst-managed companies I’ve ever seen in my life of any size,” Rattner said, adding that he’s happy with the management team that he helped to install. “I wake up every morning grateful that Ed Whitacre is there.”
Read more at WSJ.

Compared to the heyday of 2007, companies need to offer more equity for capital

“We’ve slowly been picking up speed as far as deal flow goes,” says John Gabbert, chief executive of Seattle-based Pitchbook Data Inc., a private equity research and news company. "So far this year, 20 private equity funds have raised $15 billion nationally."
Speaking at the ACG conference held in Houston, private equity experts seemed more positive than six months ago.But lenders are still holding back on their end, the panel of private equity experts said.
“It’s still very difficult to get financing,” said Peter Rosenberg, managing director of the middle market group of investment banking and capital markets at Wells Fargo Securities LLC in San Francisco. “We have not seen many stable situations and we are finding out now that the lenders are being much more detailed in performing their own scrutiny and their own due diligence.”
Compared to the heyday of 2007, companies need to offer more equity to move forward.
“As we see it, the structures tend to be requiring about 40 percent or more equity to get the deals done,” said panelist Charles Riceman, managing director of Chicago-based Golub Capital. However, Riceman also said he expects to see a further increase in deal activity in the second half of 2010.
"Canadian business owners are recognizing these shifts as their top market, America, is not the economic powerhouse of five years ago. It is painful to make the adjustment and not believe that over the mountain, an economic recovery is coming," commented Jacoline Loewen, author of Money Magnet: Attracting Investors to Your Business. "A business is a life long work of art and to suddenly see the value fall drastically is hard to accept."

America overtaken on Forbes Billionaires' List

Scratch Bill Gates off the top of the list of richest people in the world. The new bizillionaire is Carlos Slim of Mexico who makes his money from...wait for it...finance and teleco. Read more...

China is now home to 64 billionaires – the most of any country outside the US – with 27 of them reaching the $1bn mark for the first time. Newcomers include Li Shufu, who runs Chinese car manufacturer Geely - which is on the verge of buying Volvo from Ford – and Fu Guangming who runs Fuijan Sunner Group which processes chicken for Kentucky Fried Chicken in China. Anyone catering to Chinese consumers is doing very well. The 14 self-made women on the 1,011-strong list have one interesting trend: Seven are in China.

Brazilian mining magnate Eike Batista saw a dramatic increase in his wealth over the year, up $19.5bn to $27bn, the biggest wealth gain of anyone on the list. Overall, the Forbes annual survey reflected a significant return in many billionaire’s fortunes, with the average net worth of those on the list rising from $3bn to $3.5bn, although that is perhaps not surprising as the cut-off date for the 2009 survey was February 13 2009, close to last year’s stock market lows. Aside from Messrs Slim and Gates, investment guru Warren Buffett took third place, with a fortune valued at $47bn, up $10bn from the prior year. Other notable constituents on the list include LVMH chief Bernard Arnualt, Europe’s richest man with a $27.5bn fortune. Ranked seventh, he has seen his fortune rise by $11bn in the last 12 months. Steel magnate Lakshmi Mittal saw his fortune increase $9.4bn to $28.7bn, pushing him up two spots to fifth place.

In terms of British billionaires, Sports Direct and Newcastle United owner Mike Ashley is now worth $1.5bn, while the Duke of Grosvenor and his family remain the wealthiest Britons, with a $12bn fortune, up $1bn in spite of the fall in the value of commercial property. One UK newcomer to the list is hedge fund manager Alan Howard – of Brevan Howard – with a net worth of $1.8bn, while David and Simon Reuben ($7.5bn), Sir Richard Branson ($4bn), and Joe Lewis ($3bn) all saw their fortunes increase in the last 12 months.

Read more.

Western world standards for business, such as paying a fair, living wage to employees and  paying taxes are increasingly driving good companies out of North America to offshore factories.

If you do not have a rich uncle, where else can you get seed money?

We do not all have rich uncles to hand out the seed money to coax a business through those early stages of growth. Yet, that loan or grant at the critical early stages of business can mean all the difference in survival, along with some mentorhip. So what is a young entrepreneur to do? We are very lucky in Canada to have the Canadian Youth Business Forum (CYBF) which delivers all the help of a rich uncle.

I have been involved with many business incubator type organizations and this is one of the best in the world. CYBF gives loans and grants to young entrepreneurs but they also assign a mentor, usually a seasoned executive, who can prod on the owners to do the right things and meet the right people. So much of business is about who you know and having that right mentor. CYBF has worked hard to get all the pieces in place to give fragile start ups that extra boost, and to get the wing beneath their wings. Their impressive list of companies who have gone onto Dragons' Den and won deals keeps growing and there are loads of quiter successes, as well as rapidly scaling companies.

It is thrilling to let you know that CYBF, representing Canada, received the top prize of 'Country of the Year Award' at the Global Entrepreneurship Congress in Dubai. As the official host of Global Entrepreneurship Week Canada (GEW) for 2009, CYBF was honoured to accept this award on behalf of all our partners. Thanks to all the volunteers and Board commitment, CYBF came first among 100 competing countries. To learn how CYBF promotes a culture of youth entrepreneurship within Canada and globally, please read their press release Please click on the following link to access it: http://dl.dropbox.com/u/2738308/Dubai_award_release.doc

A special hats off to Vivian Prokop, CEO of CYBF. Vivian knows the entrepreneurs well and is a role model for all of them. She has inspired and driven the growth of CYBF with her sparkle and energy.The federal government also recognized the credibility and success of CYBF by awrding a $20 million grant which CYBF then distributes to young entrepreneurs as the seed money to get them started.

To apply for CYBF, go here.

To become a mentor, go here.

Jacoline Loewen, author of Money Magnet and supporter of CYBF.