PrefBlog

The Penn National Gaming takeover has failed:

Penn National Gaming Inc. said Fortress Investment Group LLC and Centerbridge Partners LP scrapped their $6.1 billion plan to buy the racetrack and casino company as the credit markets collapsed.

Penn is the largest leveraged buyout agreement, including debt, to fall apart since J.C. Flowers & Co. backed out of an accord last year to purchase SLM Corp., also known as Sallie Mae, for $25.3 billion.
…
Penn said it will receive $225 million to terminate the takeover and a $1.25 billion interest-free loan.

“This transaction represents the company’s best alternative to the uncertainty of litigation,” Penn said.

And today I received an eMail from a reader gazing with lust in his eyes at the BCE issues! Said it before, I’ll say it again: BCE prefs are a speculation on the success of the Teachers’ deal. They are only a fixed income investment by courtesy, at this point.

Further, I noted yesterday that the US TruPS market was being hit by a CDO buyers’ strike. This could also, indirectly, make financing the BCE LBO more difficult:

Defaults on leveraged-buyout loans may rise as firms struggle to refinance about $500 billion of debt used to fund the takeovers, the Bank for International Settlements said.

Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010, the Basel, Switzerland-based bank said in a report today, citing Fitch Ratings data. They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans, BIS said.

Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns.

The BIS report, Private Equity and Leveraged Finance Markets, is available online.

BIS has also published a report on the rating of structured finance: Ratings in Structured Finance: What Went Wrong and What Can Be Done to Address Shortcomings? which has been briefly discussed on PrefBlog.

In news that is certain to inflame the Internuts, the Fed has announced:

The Federal Reserve said the portfolio of Bear Stearns Cos. assets it accepted as part of the firm’s takeover by JPMorgan Chase & Co. is now worth $28.9 billion, down from the $30 billion estimated in March.

The central bank cut the “fair value” of the assets by 3.7 percent as of June 26, the Fed said today in Washington. The Fed loaned $28.8 billion last week to a company it formed to purchase the investments, which as of mid-March included debt backed by mortgages and other items JPMorgan deemed too risky to take on.

The Fed gave the fair-value estimate of Maiden Lane LLC’s holdings as part of its weekly report on its balance sheet today.

Details are posted with the July 3 H.4.1 Release.

Yet another thoroughly appalling day in what has become (as far as I can tell) a self-feeding panic. Today’s pre-tax bid-YTW of 6.14% is equivalent to 8.60% interest (at a conversion factor of 1.4x), which is now 250bp over long corporates. And it’s not too hard to get that 6.14% average from a big-name bank, either!

On the bright side, that 250bp represents a 10-year high and the previous high was very short-lived. We shall see!

There were nineteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

This entry was posted on Thursday, July 3rd, 2008 at 10:33 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.