Candover Makes Sweeping Management Changes

LONDON (Reuters) - British private equity firm Candover Investments (CDI.L) announced a major management shake-up on Friday as it looks to repair its damaged reputation and salvage its 2008 fund.

Former driving force Colin Buffin, who has been with the firm since 1985, will step down once talks over the future of the fund are concluded.

Marek Gumienny will become chairman of Candover Partners, the private equity subsidiary that makes all the firm’s investments, while John Arney becomes managing partner.

Candover’s complicated structure — with a listed parent and an independent but wholly-owned fund manager — came in for intense criticism when the group earlier this year said it could no longer invest in its own fund.

The 2008 fund was launched and part-raised but never closed.

When Candover Investments defaulted on its commitment, the fund manager was obliged to ask investors — who had already pledged some 2 billion euros ($2.85 billion) — if they wanted to withdraw their original commitments.

Candover expects to conclude discussions with investors in the weeks ahead, which it hopes will lead to the emergence of a smaller than originally planned 2008 fund.

Candover in June called off talks over a sale of the company and said it expected to meet debt covenants after the sale of energy research business Wood Mackenzie to rival Charterhouse [CHCAP.UL], for 553 million pounds ($913.4 million).

Despite the proceeds from the sale, Candover said it would not be offering an interim dividend. It said net asset value had fallen 12 percent to 902 pence since end-December.

Candover also said finance director Tian Tan has retired, with Matthew Harrison assuming the role, while Matthew Fallen, who led the strategic review, has been confirmed as CEO of Candover Investments.

Shares in Candover Investments rose 3.3 percent to 411 pence at 0732 GMT in low volumes.

(Reporting by Simon Meads; Editing by Douwe Miedema)

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Hello, Berkshire Partners… Is Anybody Home?

Earlier this week, we reported that Berkshire Partners had quietly hired five new associates. The next day, Private Equity Insider wrote the following:

Columbia University’s endowment is calling off a secondary-market offering of nearly $1 billion, after selling a sliver of the portfolio to Adams Street Partners. The Adams Street sale involved stakes in just three or four private equity funds run by Berkshire Partners and TA Associates — vehicles whose characteristics were on a “want list” maintained by the Chicago fund-of-funds specialist.

I don’t use these examples to show how someone else got a better scoop than peHUB (although they did), but rather because the rat-a-tat-tat got me to thinking about how long it had been since I’d heard Berkshire’s name mentioned in any context.

The Boston-based firm raised $3.1 billion for its seventh fund in 2006, but hasn’t announced any new acquisitions since October 2007 (save for one PIPE and a pair of bolt-on acquisitions in February ‘08 and January ‘09). The only disclosed exit was a partial sale of its Party City retail chain (AMSCAN) to Advent International last fall. I know private equity is slow right now, but this is approaching Comcast turtle territory.

So I rang up Berkshire managing director Kevin Callaghan, to get a better sense of what was going on at Boston’s most understated buyout firm. What he said, essentially, was that looks can be deceiving.

“We’ve obviously slowed down like the rest of the market has, but we’ve also done a lot of deals that we’ve decided not to publicly announce,” he explained. “For example, we’ve committed multiple hundreds of millions of dollars into a wireless infrastructure initiative that right now we’re just calling Tower Development Corporation.”

Callaghan doesn’t really have a great explanation for why the firm hasn’t been more vocal about its deals, except that it can be a bit difficult to explain “non-traditional” deals. “If we had done a traditional leveraged buyout in the past year, we probably would have announced it,” he said.

Back to the issue of investment activity: I pointed out to Callaghan that on of Berkshire’s limited partners, the Pennsylvania State Employees’ Retirement System (PA SERS), reported that the fund had called down just around 20% of its $3.1 billion through the end of 2008. He replied that the percentage of committed capital is actually closer to 50%, with many deals (like the wireless devco) not yet having called down most of their capital. He adds that even though Berkshire Fund VII was raised in 2006, it didn’t begin investing alone until last year. In the interim, it co-invested with Berkshire Fund VI — as is firm custom (a bizarre custom, but custom nonetheless).

Finally, I asked Callaghan the same question I seem to be asking all buyout pros these days (personalized for the particular conversant): ”When raising your fund in 2006, you based your return expectations on the availability, and usage, of leverage. Do you need to revisit what you promised LPs? Are those return expectation still operable?”

Callaghan replied: “I think the character of returns will change, in that it will be less from leverage, and more from earnings growth. That’s what we’ve seen in past recessions, which also is where we generated the best returns in Berkshire’s history.”

Not exactly a direct answer (I never expect one to this question), but a decent stab. At the very least, it was good to hear that Callaghan and Berkshire were still alive and dealing.

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KKR Closes European Annex Fund

LONDON (Reuters) - U.S. buyout firm KKR has closed an annex fund to support companies in its second European fund with over 400 million euros ($569.1 million), towards the bottom of its range, a source close to the company said.

KKR confirmed on Thursday it had recently closed the annex fund, but declined to comment on the amount of capital raised.

KKR was looking for 400 million to 700 million euros for follow-on investments, having exhausted the capital in its second European buyout fund, which holds high-profile investments including pharmacy chain Alliance Boots and German broadcaster ProSienbenSat.1 (PSMG_p.DE).

Increasing numbers of private equity firms are raising annex, or top-up, funds as they find they have insufficient capital in their main funds for equity injections or portfolio company acquisitions.

However, annex funds can be unpopular with investors as returns have historically been poor.

KKR is satisfied with the level of capital raised, which will be used for “selected investments” in the fund, the source said. The 4.5 billion euro fund was raised in late 2005.

Under the terms of the agreement, investors were able to transfer a portion of their commitment to the third European fund to the annex fund, the source said. ($1=.7028 Euro)

By Simon Meads (Editing by Simon Jessop)

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WSJ: Macquarie In Talks To Buy Fox-Pitt Kelton

NEW YORK (Reuters) - Australia’s Macquarie Group Ltd (MQG.AX) is in “serious discussions” about acquiring Fox-Pitt Kelton Cochran Caronia Waller, a small investment bank partly owned by private equity firm J.C. Flowers & Co LLC, the Wall Street Journal reported on its Deal Journal blog Thursday.

Citing people familiar with the talks, the Journal said Fox-Pitt could fetch as much as $150 million, though no agreement has been completed and many hurdles remain. At that price, J.C. Flowers would receive twice what it paid Swiss Reinsurance Co (RUKN.VX) to acquire Fox-Pitt in 2006.

Officials from London-based Fox-Pitt Kelton and Macquarie were not immediately available to comment.

Macquarie, Australia’s largest investment bank, has recently been on a buying and hiring binge. The company is eager to extend its reach into new regions and wants to lessen its dependence on infrastructure investing.

On Wednesday, Macquarie agreed to buy U.S. money manager Delaware Investments from Lincoln National Corp (LNC.N) for $428 million. Earlier this year, Macquarie bought Tristone Capital, an energy investment bank, and a gas-trading business from Constellation Energy (CEG.N).

Fox-Pitt, partly owned by its management, provides M&A advice, underwriting and research focused on banks, insurers and other financial services firms. Fox-Pitt merged with insurance industry boutique Cochran Caronia Waller in 2007. (Reporting by Joseph A. Giannone, editing by Maureen Bavdek)

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American Capital Files for $1.5 Billion Mixed-Shelf

(Reuters) - American Capital Ltd (ACAS.O) plans to periodically sell $1.5 billion in debt securities, common shares and preferred stock, it said in a regulatory filing.

American Capital, a provider of financing to small and mid-sized businesses, said it intends to use the proceeds for general corporate purposes, acquisitions and to repay debt within the next two years.

Earlier this month, the struggling private equity lender posted a $547 million loss and said it remained in default on a $2.3 billion debt facility. 

The company has struggled as the recession has reduced the value of its portfolio companies to which it makes loans in return for equity stakes.

Under a shelf registration filed with the U.S. Securities and Exchange Commission, a company may sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale.

Shares of the company were trading flat at $2.87 Wednesday late morning on Nasdaq. (Reporting by Archana Shankar in Bangalore; Editing by Anne Pallivathuckal)

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What’s Holding Back The Tidal Wave of PE-Backed Bankruptcies?

At the beginning of this year, bankruptcy pros looked at the massive hangover of LBO debt, coupled with the deteriorating economy, and predicted a giant wave of bankruptcies would wash over the private equity world in 2009. While bankruptcies are up over last year (on pace to double, in fact), the figure is still not close to “tsunami” proportions. Part of that can be attributed to increasing flexibility on the part of the lenders.

One driver of that flexibility is a move called “amend and extend,” a debt workaround that Buyouts’ Ari Nathanson outlined in the magazine’s latest issue (sub. required). In such transactions, the buyout firm negotiates with a firm’s existing lenders to extend the maturity on a portfolio company’s loan in exchange for increased pricing on the leverage.

These so-called “amend-and-extend” deals are growing in popularity among borrowers looking to stave off loan maturities in a market lacking traditional refinancing and exit opportunities. Through July, S&P tracked a total of 56 issuers that have sought amend-and-extend deals this year, 24 of which were sponsor-backed companies.

Of the 26 buyout-backed companies that have undergone such transactions thus far in 2009, four were backed by KKR. Yesterday, KKR’s Henry Kravis said that the firm has prioritized 11 portfolio companies that will require debt restructuring or refinancing. The firm has put two amendments in place for health care portfolio company HCA in 2009, he said.

Companies owned by Blackstone Group, Bain Capital, TPG, Carlyle, THL Partners, Silver Lake, and Hellman & Friendman all made appearances on the S&P list.

Blackstone Group commented on the amend and extend trend in the firm’s recent earnings call. CEO Steve Schwarzman said the firm has retired or extended more than $10 billion worth of debt this year. James said that, in general, banks have been happy to “kick the can down the road,” because it is cutting back on the number of distressed situations that turn to bankruptcy.

Regarding the terms, Nathanson wrote that spread increases for these deals averaged 160 basis points in July. Meanwhile fee increases averaged an increase of 38 points, according to S&P. Bu these deals aren’t for the very distressed:

Because of the additional price burden on the part of the issuer, and the prolonged exposure to a legacy asset on the part of the lender, amend-and-extend deals are not right for every company looking to stave off a near-term maturity. William Shields, a partner at law firm Ropes & Gray, said companies out of compliance with their covenants or those that lack some semblance of stability need not apply.

The lowest rating on a sponsor-backed company completing such a transaction in 2009 was ‘B-’, according to S&P.

Read more:

Lynn Tilton Wants To Save The Middle Market (But Can’t Do It Alone)

The Government Has Excluded the Middle Market

Sankaty Raising Funds for DIP and Mid-Market Lending

Who’s Filling The Senior Loan Void? It’s Your Friendly Regional Bank
THL Raising $300 Million For Blind Pool Credit IPO
ACAS Alums Form New Mezz Fund: Boathouse Capital
CastleGuard Partners Wants To Revive Middle Market Lending
Freeport Financial Empties Ship
Heads Keep Rolling at Mid-Market Lenders
Filling the Senior Loan Void: Chatham Capital Steps Up

(Why are we writing about debt so much, you ask? Because thanks to its scarcity, there are no deals to cover!)

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Lynn Tilton Wants To Save The Middle Market (But Can’t Do It Alone)

Lynn Tilton is on a mission. Each day the founder of distressed buyout firm Patriarch Partners hears from more than 20 worthy middle market companies in need of rescue financing.

The high volume is due, in part, to the lack of access to capital for middle market companies. They are too small to qualify for money from government plan TARP, and traditional sources of capital for middle market companies have retreated from the market to lick their wounds.

Tilton has a solution to the middle market capital drought which involves using money allocated for PPIP alongside cash from private investors. She’s proposed the plan, called SME Rescue Loans Program, to the Treasury and White House in a white paper (posted below). I spoke with her about the plan’s terms, incentives, and status.

PPIP hasn’t exactly gotten off the ground. Why will this plan be more attractive to investors than PPIP, particularly since it gives the first loss to private investors?

The reason PPIP hasn’t gotten off the ground is not because it hasn’t been attractive to investors. The problem is that you’re not getting banks to sell their mortgage assets because they’ve been given TALF, and so they’ve been able to take themselves out of the mess they were in. They’re not looking to sell their mortgage assets at a discount.

So the biggest problem that the economy faces now is the death of lending to middle market companies. The only way to address that is by rescue financing. You need immediate lending availability because companies are liquidating on a daily basis. So we’re trying to put together a structure that allows people to use the leverage to try to offset losses, and still guarantee returns to incent the private sector to make loans.

I tucked my plan into PPIP because there’s money ready to use, and because you won’t need congressional approval, or additional money. The money from PPIP is sitting there for the same purpose, which is to address the ability for banks to lend.

The reason we set it up so that the investor takes the first loss layer is because there was a lot of pushback that this was another opportunity for Wall Street  to be cowboys and make a lot of money. I felt like, if we are in charge, we should be the most responsible. The incentive is the ability to use low cost government capital in terms of leverage.

Why wouldn’t the government just expand the criteria for TALF to include middle market companies?

They could expand the criteria but you don’t want what’s happened with TALF, which is secondary loans. Unemployment continues to rise and will become a problem because middle market companies are going away through liquidations. We need rescue and DIP financing to keep these companies alive, and we don’t want that intention to become a secondary vehicle where people can unwind CLOs and turn middle market loans into newly-leveraged securitization vehicles. TALF would have to be used for only new loans. That can take a long time, and it becomes more complex.

I assume you are investing directly in distressed companies without government leverage now. What’s the benefit to Patriarch Partners of getting the government and others involved?

Yes, we do this every day anyhow. Frankly, I’ve done this because I worry for our country. I don’t need the government to make rescue loans to but certainly I alone cannot fix this problem. I did this because I was hoping that the Treasury and Congress would realize that this is a solution to a great threat and other people would see it and jump on the bandwagon.

When we launched this white paper, we made the decision that we will provide rescue financing to companies. They can request financing from us on the website SMERescueLoans.com. It’s only a week old and we have 50 loan applications already.

How large could this program be if it comes into fruition?

I’d like to see $30 billion of PPIP allocated this way, which would leave to another $5 billion or more of money from investors. That could address a lot of the problems here.

When did you start shopping this plan to the Treasury and the Administration, what has their reaction been, and what is next step?

We started earlier this month. We got almost no pushback on the paper, the problem, or the solution. People at the Treasury and along both party lines were interested. We need to continue to work on it but people have really said they were very interested. The biggest pushback was from people who didn’t vote for TARP and don’t know how to vote for this.

Besides drafting the plan, what would Patriarch Partners’ role be in the program?  Will the firm commit to the invest through the plan? Will it manage any part of it?

We will see where it goes depending on what we’re asked to do. We’re willing to put up $150 million of own money to do a pilot program. But it really is not for us, it’s for the country. We could go out and raise a fund to do it, and I’ve been doing this kind of investing for nine years. I alone cannot move this economy in the right direction, so we’re trying to take what we’ve done here with our data, history and models, and try to push it into a program where money managers will participate.

We’re also trying to get smaller managers involved here. Some of the other programs require $10 billion of assets under management in certain categories. We think in this kind of program, if people have $1 billion of assets dedicated to distressed investing, they will have the infrastructure in place to qualify.

Here’s a recent video of Tilton’s appearance to discuss her plan on Fox Business News:

And here’s the white paper:

SME Rescue Loans Program (a) (2)

Previously:

The Government Has Excluded the Middle Market

Sankaty Raising Funds for DIP and Mid-Market Lending

Who’s Filling The Senior Loan Void? It’s Your Friendly Regional Bank
THL Raising $300 Million For Blind Pool Credit IPO
ACAS Alums Form New Mezz Fund: Boathouse Capital
CastleGuard Partners Wants To Revive Middle Market Lending
Freeport Financial Empties Ship
Heads Keep Rolling at Mid-Market Lenders
Filling the Senior Loan Void: Chatham Capital Steps Up

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Inner City Entrepreneurs Want You

As some of you know, my first real journalism job was helping to launch and manage a youth-focused community newspaper based in Roxbury, Mass., which qualifies as part of Boston’s inner city (both geographically and figuratively).

Small operation, which means a lot of my time was spent hustling for advertisers, which typically were local businesses. In all my conversations with these enterprising entrepreneurs, I never heard terms like “venture capital” or “growth capital.” I did, however, often hear the term “bank” with some sort of expletive preceding it.

The problem, of course, was on both sides of the proverbial coin: The inner city businesses had no idea how to access the private capital markets, and the private capital markets paid to attention to inner city businesses.

While I was sweating it out in Roxbury (no air conditioning), an HBS professor named Michael Porter was addressing the issue from more comfortable environs (I’ve been in HBS offices – like meat lockers). He had done a lot of work around competitiveness and strategy, and wanted to apply his findings to the inner city. The result was something called the Initiative for a Competitive Inner City, a nonprofit aimed at promoting “economic prosperity in America’s inner cities through private sector engagement that leads to job, income and wealth creation for local residents.”

The group’s flagship national event is called Inner City Capital Connections, and takes place on November 18-19 in New York City. The idea is that ICIC puts out a call to inner city businesses, with the requirements that they be for-profit and have at least $2 million in annual revenue. ICIC then vets the applicants (with some help from BoA), and invites the crop’s cream to a one-day training seminar on things like elevator pitches, structuring term sheets, etc.

One month later (Nov 18-19), the applicants basically participate in a deal-flow circuit, pitching themselves to angels, VCs and growth-stage investors. Since 2005, participating companies have raised $144.3 million, including $54.2 million in equity capital and $90 million in debt capital.

The event is free to attend for institutional investors, and I really encourage you to participate (if it fits your investment thesis). One side of the coin has already stepped up, and now it’s waiting for you. Get all the details here.

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CIT Completes Debt Tender, Buys Time To Restructure

NEW YORK (Reuters) - CIT Group Inc (CIT.N) said on Monday it completed its tender offer for $1 billion in debt maturing today, buying the company more time to attempt to restructure its debt and stave off bankruptcy.

The company had said it may be forced into bankruptcy if it the tender was unsuccessful and it was unable to secure alternative financing.

Concerns over CIT’s health have grown since the lender to small and medium-sized companies, which became a Fed-supervised bank holding company in December, failed to receive further government assistance under the FDIC’s Temporary Liquidity Guarantee Program.

CIT said 59.81 percent of the $1 billion floating rate notes eligible for the tender were offered, at a purchase price of $875 per $1000 in debt. CIT will repay notes that weren’t tendered in the offer at their full value, the company said.

“The completion of this tender offer is another important milestone as the company continues to make progress on the development and execution of a comprehensive restructuring plan,” CIT said in a statement.

Last week, the U.S. Federal Reserve ordered CIT to submit a plan for raising capital and meeting debt obligations within 15 days.

CIT agreed that within 60 days it would outline how it will manage credit risk and review its system of setting aside money for loan and lease losses.

Within 75 days, CIT must submit a business plan to improve its financial condition and outline actions to strengthen its management and corporate governance, the Fed said. CIT also requires approval from the Fed before paying dividends or pursuing other transactions.

CIT received a $3 billion, 2-1/2-year emergency loan from its bondholders last month. The company needs its creditors to approve a restructuring plan by October 1, under terms of this loan.

(Reporting by Karen Brettell; editing by Jeffrey Benkoe)

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Macquarie Buys Delaware Investments

SYDNEY (Reuters) - Macquarie Group Ltd (MQG.AX), Australia’s top investment bank, agreed to buy U.S. asset manager Delaware Investments for $428 million in cash from Lincoln National Corp (LNC.N), continuing a trend of consolidation in the fund management business.

Macquarie, which has weathered the global financial crisis better than its global peers, has been on the lookout for acquisitions, taking advantage of falling asset prices.

The deal would boost Macquarie’s total assets under management to over $300 billion, the bank said in a statement on Wednesday.

“The acquisition of Delaware is a demonstration to our clients of the ongoing commitment we have to developing a global asset management capability with significant scale, product depth, research and investment capacity,” Shemara Wikramanayake, global head of Macquarie Funds Group, said in a statement.

Delaware manages about $125 billion in assets and the deal was subject to regulatory approvals, Macquarie said.

“Macquarie has still got a lot of surplus capital sitting there and they have a got a lot of powder. This is certainly a step in the right direction,” CLSA analyst Brian Johnson said.

Lincoln, one of the largest U.S. life insurers, said the sale will help it focus both management and capital resources on its core businesses, insurance and retirement .

Goldman, Sachs & Co was Lincoln’s financial advisor.

In June, Canadian insurer Sun Life Financial Inc (SLF.TO) bought the UK operations of Lincoln for about C$359 million ($326.1 million).

Industry experts expect a wave of consolidation in the fund management industry following BlackRock’s (BLK.N) $13.5 billion deal to buy an asset management unit of Barclays (BARC.L).

Bank of America (BAC.N) has been trying to sell its Columbia Management unit, for instance.

Macquarie has used the previous market declines to buy up distressed assets. It bought BT’s Australian operations in 1999 and ING Group’s Asian equities business in 2004.

(Reporting by Denny Thomas in Sydney and S. John Tilak in Bangalore; Additional reporting by Saeed Azhar; Editing by Jonathan Standing and Rupert Winchester) ($1=A$1.20) ($1=1.101 Canadian Dollar)

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Macquarie, Everbright Raising $1.5 Billion for China Infrastructure Deals

SHANGHAI (Reuters) - Macquarie Group Ltd (MQG.AX) has formed a joint venture with China Everbright Ltd (0165.HK) to launch two funds targeting infrastructure which aim to raise a combined $1.5 billion, joining a growing list of foreign players expanding private equity investments in China.

The funds - one open to foreign institutional investors and the other to domestic investors - will invest mainly in toll roads, railways, airports, renewable energy and water projects in China, Hong Kong and Taiwan, the two companies said on Wednesday.

Macquarie is Australia’s biggest investment bank and manages $36 billion in infrastructure equity globally. Everbright is a unit of China’s second-biggest financial conglomerate Everbright Group. The firms have committed up to $100 million as sponsors of the two new funds, each targeting a first close in 2010.

“We are confident that Chinese infrastructure continues to offer attractive investment opportunities to both international and domestic investors and that our first mover advantage will contribute to our success,” David Russell, Macquarie’s head of private equity Asia said in a statement.

“Particularly in Asia and our emerging market businesses, we are constantly reminded that key to the success of building sustainable, long-term businesses is a commitment to being local.”

U.S. private equity firm Blackstone Group LP (BX.N), French brokerage CLSA and Hong Kong-based First Eastern Investment Group have recently announced plans to launch new funds in China, as the Chinese government seeks foreign investment to revive the private sector and complement the country’s 4 trillion yuan ($586 billion) stimulus plan that focuses on infrastructure.

“Greater China is one of the largest and most diverse markets in the world and the market continues to offer enormous and rapidly expanding infrastructure investment opportunities,” said Chen Shuang, chief executive officer of Everbright.

About $67 billion of foreign direct investments have been channelled into China’s infrastructure sectors by end-2007, while investment continues to grow rapidly, fuelled by the country’s annual economic growth of 6 to 10 percent, Chen said.

Macquarie is a decade-old player in China’s real estate market, and is setting up a joint venture trust company in the country.

Last Friday, Blackstone, the world’s biggest private equity firm, announced plans to create a 5 billion yuan ($731.7 million) fund in partnership with the Shanghai government.

CLSA plans to launch a 10 billion yuan local-currency fund via a newly set up asset-management venture, while First Eastern aims to raise 6 billion yuan selling funds in China, the companies said in separate statements this week. ($1=6.833 Yuan)

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IBM Sends Some Big VC Guns To Brazil

Over a dozen IBM execs have descended on Sao Paolo this week, to spearhead the expansion of Big Blue’s venture capital group in Brazil.

As part of an open house today for Brazilian venture capitalists, startups, software developers, academics and government officials, IBM is playing matchmaker and is holding an American Idol-style contest, also modeled on Stanford’s AlwaysOn program, for companies to pitch themselves for funding, said Drew Clark, director of strategy for IBM’s Venture Capital Group.

“Introducing a company that IBM knows has a route to market is taking the risk out of the deal right there,” Clark said. He stayed in the U.S. while his boss, VP Claudia Fan Munce, went to Brazil.

IBM’s venture group has been in Brazil for several years — last year it took its Silicon Valley buddies, Draper Fisher and Hummer Winblad, on a tour. But this year IBM has gone farther and partnered with FINEP — the Brazilian Innovation Finance Agency — and Performa, a seed stage fund.

That’s because the same pressures that affect VCs in the U.S. — lack of liquidity, the ability to start companies for so little that VCs are squeezed out of the early stages — are occurring in Brazil, especially in cloud computing and the Web.

“It’s exciting for us, but we’ve got to dig in earlier and get in at an early stage and build relationships with partners,” Clark said. “That’s why we’ve got to be in a place like Brazil and don’t just phone it in from here.”

IBM also believes Brazil is more sheltered than the U.S. and some other countries from today’s economic crisis, despite the hyperinflation and other troubles that have hit Brazil in the past.

IBM sees the Brazilian IT market growing 10 percent, especially in verticals like healthcare, energy and financial services, and has signed 1,500 new partners in Brazil in the last year. It’s also translating its DeveloperWorks platform into Portuguese and giving away Lotus software to colleges and universities.

“Brazil is a bright spot — not a jewel, but a bright spot in a sea of uncertainty,” Clark said.

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Sankaty Raising Funds for DIP and Mid-Market Lending

Sankaty Advisors, the credit affiliate of Bain Capital, wants to help plug the gaping hole that is middle-market lending.

The Boston-based firm has launched two new funds in recent weeks, one designed to invest in middle-market debt, and another to capitalize on the bankruptcy bubble with DIP loans. According to sources familiar with the efforts, Sankaty is looking to raise $750 million for Sankaty Middle Market Opportunities Fund, and $400 million for Sankaty DIP Opportunities Fund.

Sankaty Middle Market Opportunities Fund (MMOF) will invest in middle-market mezzanine loans with some senior debt and equity. More specifically, it would target credit for new buyouts, rescue financings and secondary purchases of mezzanine debt. Sankaty expects to close on fundraising in November 2009, and then invest over the subsequent four years. Sankaty MMOF will charge a 1.25% fee on drawn capital with a 20% carry, including an 8% preferred return to LPs.

Sankaty’s middle-market group has generated a gross IRR of 21.5% through 34 exits to date, according to marketing materials.

Sankaty DIP Opportunities Fund will make debtor-in-possession loans to bankrupt entities. The $400 million fund has a two-year investment period with fees of 1.75% on commitments. The firm anticipates returns of between 12% and 15% for the entity.

A representative for Sankaty Advisors did not respond to inquiry by press time.

Previously:
Who’s Filling The Senior Loan Void? It’s Your Friendly Regional Bank
THL Raising $300 Million For Blind Pool Credit IPO
ACAS Alums Form New Mezz Fund: Boathouse Capital
CastleGuard Partners Wants To Revive Middle Market Lending
Freeport Financial Empties Ship
Heads Keep Rolling at Mid-Market Lenders
Filling the Senior Loan Void: Chatham Capital Steps Up

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Arlington Capital Holds First Close on Fund Three

Arlington Capital has held a first close on its third fund. The fund, with a $750 million target, has closed $204.7 million in commitments from 13 investors, according to a regulatory filing. The firm began circulating its private placement memorandums in January of this year.

Credit Suisse is the firm’s placement agent on this fund, even though it used UBS for its second fund, a $585 million pool. Apparently UBS told the firm that the leap from $585 million to $750 million was too steep given the environment. Likewise, the firm’s main contact at UBS, Mark Bourgeois, left UBS to go to Lehman Brothers in March 2008.

Arlington is based in Washington, D.C. The firm got its start in 1999, founded by Jeffrey Freed and Robert Knibb. The firm’s last fund posted a net 1.8% IRR, which doesn’t really reflect any exits. Earlier this month, Arlington Capital acquired J.A. Reinhardt and Company through its portfolio company, TSI Group, Inc. The company makes manufactures thermal and mechanical products.

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Live-Blogging KKR Earnings Call

KKR Private Equity Investors, the Amsterdam-listed affiliate of U.S. buyout firm KKR, earlier today released its Q2 earnings. Writeups for Dollar General and HCA, writedowns for Energy Future Holdings (fka TXU) and ProSiebenSat.

The earnings call will take place at 1pm ET this afternoon, and I’ll live-blog it below. I won’t be able to ask any questions — analysts and investors only, sniff — but we can have a conversation amongst ourselves…
KKR Private Equity Investors, the Amsterdam-listed affiliate of U.S. buyout firm KKR, earlier today released its Q2 earnings. Writeups for Dollar General and HCA, writedowns for Energy Future Holdings (fka TXU) and ProSiebenSat.

The earnings call will take place at 1pm ET this afternoon, and I’ll live-blog it below. I won’t be able to ask any questions — analysts and investors only, sniff — but we can have a conversation amongst ourselves…

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KKR Writes Up HCA, Dollar General

NEW YORK (Reuters) - Private equity firm Kohlberg Kravis Roberts & Co’s Amsterdam-listed fund said on Monday that it marked up the value of its investments in portfolio companies Dollar General and hospital firm HCA for the three months to June 30.

Private equity firms are ramping up plans to take portfolio companies public, as a long freeze in being able to exit investments appears to be thawing. Both those companies are possible IPO subjects.

KKR Private Equity Investors (KKR.AS) (KPE) marked the value of its investment in discount retailer Dollar General $116.2 million higher for the three months to June 30. It was marked from 1.3 times the cost of the investment at the end of March 2009, to 1.7 times cost at June 30.

It marked its investment in HCA $49.7 million higher, to 1.2 times cost at the end of June.

A listing of discount retailer Dollar General is possible before the year-end, and HCA is also being considered, a source familiar with the situation previously told Reuters.

Plans for HCA, however, are unlikely to get off the ground until there was more clarity around the Obama administration’s reform of healthcare, that source said at the time.

KKR is itself planning to become a publicly-listed company through a complex deal that will see it combine with Euronext-listed KPE. That transaction is expected on Oct. 1.

KPE also said on Monday its net asset value for June 30 was $3 billion, or $14.66 per unit. That is down from the $22.25 per unit reported at the same time a year ago, but higher than the $12.82 reported at the end of March.

It is also towards the higher end of guidance KPE gave in July — that its net asset value was expected to be between $14.55 and $14.75 per unit for the quarter.

EQUITY MARKET REBOUND

Valuations of KKR’s portfolio companies have been helped by a rebound in the equity markets over the last few months. Private equity firms have to value their portfolio companies as if they were selling them today; rather than years in the future.

The company also released select financial data for KKR itself.

Assets under management grew to $50.8 billion compared with $47.3 billion at the end of March, but lower than the $60.8 billion recorded a year ago, the company said.

Economic net income was $366.9 million, compared with income of $119.9 million a year ago.

KKR launched plans to list on the NYSE via a traditional initial public offering in July 2007, a month after rival Blackstone Group (BX.N) went public and just before the markets started to tumble.

It later proposed a more complex method of going public, by combining with KPE, delisting the fund from Amsterdam and listing in New York.

In June, it formally withdrew the proposed New York IPO plan, but kept the door open for such a move, saying it had the ability to seek a listing in the future.

KPE said the deal had received consent from unit holders, with about 98 percent of KPE units in favor.

By Megan Davies

(Editing by Valerie Lee)

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BB&T Raises $870 Million After Colonial Buy

NEW YORK (Reuters) - Southeast regional bank BB&T Corp (BBT.N), which on Friday agreed to buy the assets of lender Colonial Bank, said it raised $870 million in its second large public offering this year.

BB&T, whose shares closed down 6.4 percent on Monday, said the proceeds will boost its equity capital and will be used for general corporate purposes, rather than absorbing specific credit problems.

Last week, BB&T agreed to buy about $22 billion of Colonial’s assets. The FDIC and BB&T agreed to share losses on about $15 billion of those assets. The bank had deposits of about $20 billion as of June 30.

Winston-Salem, North Carolina-based BB&T said it will grant underwriters an option to purchase up to an additional 15 percent of the shares under offer.

BB&T stock was sold at $26 per share, selling 33.45 million shares, according to an underwriter on the deal.

The sale represents a 1.6 percent discount to Monday’s closing price.

“This is somewhat of a safety measure for the bank, and they showed earlier this summer they have an ability to readily raise capital,” said Chris Marinac, an Atlanta-based bank analyst at FIG Partners LLC.

BB&T in May raised $1.5 billion after the government’s “stress tests” aimed at determining big banks’ potential to withstand a more severe economic downturn.

The following month, it repaid the U.S. government’s $3.1 billion Troubled Asset Relief Program, or TARP, investment, and is one of the few to do so this year.

The latest offering buttresses the bank’s tangible common equity ratio on the heels of the Colonial acquisition, a deal dilutive to BB&T’s capital. During the banking sector downturn, analysts and industry observer have used the tangible common equity ratio to gauge a bank’s health and ability to absorb climbing credit issues.

Most banks, analysts said, are attempting to keep the ratio at more than 6 percent; BB&T’s stood at 6.5 percent at the end of June, but that was before the Colonial takeover.

“They want to keep it at 6 percent, there’s no doubt about that,” Marinac said.

In a conference call with reporters, BB&T Chief Financial Officer Daryl Bible said the company’s management was committed to keeping the bank’s tangible common equity level “well above” a previously released guideline of 5.5 percent.

While Bible said the elevated ratio is not related to any specific credit concerns for the bank, “we are not through this credit cycle yet.” “Assets are still going bad, but we expect it to be happening over a slower pace over the next few quarters,” he said.

Credit Suisse Securities LLC and Deutsche Bank Securities are underwriters for the common stock offering and it will be co-managed by subsidiary BB&T Capital Markets.

BB&T shares closed at 26.43, down 6.4 percent, on the New York Stock Exchange in afternoon trading, underperforming the KBW Banks .BKX, which was down 4.5 percent.

By Joe Rauch

(Additional reporting by Archana Shankar in Bangalore and Phil Wahba in New York, Editing by Dinesh Nair, Tim Dobbyn and Bernard Orr)

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