Once upon a time when people talked about Kohlberg Kravis Roberts, you thought of takeovers – some hostile and some friendly. The business has certainly changed and even more so by the credit crisis over the past year. Today, KKR essentially played the role of lender, if not of last resort, pretty close to it.
KKR agreed to loan Kodak up to $400 milli0n and along with the between 10% and 10.5% annual interest KKR receives for 8 years, it gets warrants to purchase up to nearly 20% of Kodak. This deal shows how difficult times have become for Kodak. Not only is it paying a higher interest rate on the loan, but it looks like it is a pay-in-kind loan – meaning Kodak doesn’t pay KKR cash interest but instead, new securities. So, the principal it owes when these bonds come due will balloon. Payment on these bonds become tomorrow’s headache, not today’s.
The huge British bank Barclays PLC unveiled a novel plan today that in the short-term should allow it to minimize big swings in the value of not-so-stellar securities sitting on its books. It’s a plan that may very well be copied by other European banks.
Barclays is selling $12.3 billion of residential and commercial mortgage-related securities and a small amount of leveraged loans to a fund that was recently set up by two former Barclays employees. The fund will raise $450 million of equity through the sale of limited partnership interests and borrow $12.6 billion from Barlcays. The securities will act as collateral for the loan.
Yogi Berra famously talked about “deja vu all over again.”
Something like that may be going on in the financial regulatory world. Just days ago, the Securities and Exchange Commission was rebuked by U.S. District Court Judge Jed Rakoff for a lack of investigative tenacity as he threw out a proposed settlement between the SEC and Bank of America over allegations the bank misled shareholders about some aspects of the B of A purchase of Merrill Lynch.
Meanwhile, Liz Rappaport reports on Dow Jones Newswires and WSJ.com that New York Attorney General Andrew Cuomo subpoenaed five Bank of America directors to testify about that Bank of America – Merrill merger. Rappaport cited a person familiar with the investigation. Cuomo is investigating whether directors may have withheld information from B of A shareholders.
A hard-charging New York State attorney general and an SEC perceived as less effective. Where have we seen this before?
Just a few years ago, of course, when then-New York AG Eliot Spitzer took on Wall Street, starting with the conflicts of interests of some equity analysts who were more interested in drumming up investment banking business for their firms than offering disinterested buy and sell advice.
The image then was Spitzer getting the job done while the SEC was not. Could the same thing happen now? In both cases, the reality was and is more complicated than the sweeping impressions, but given recent events from the SEC role in the credit crisis to the Madoff case to the judge’s comments in the B of A settlement, the SEC doesn’t need more image problems.
The curmudgeon in me says: NO MORE TANNING BEDS IN CAMPUS DORMS! Check out colleague Dawn Wotapka’ story on the fact that college kids are demanding tanning beds or booths in college housing – despite the health risks and costs involved. Tanning beds have become “an amenity in many dorms that some budding scholars consider as essential as high-speed internet and good cuisine.” Moreover, students increasingly require tanning beds rather than “stand-up machines” because they “want to relax horizontally, instead of standing up,” one analyst tells Dawn. I would like to see the heads of the U.S.’s institutions of higher learning band together and actively discourage the use of tanning beds and booths on campuses and in college towns. Do adults (including young ones) not know the dangers of tanning beds – from falling asleep and incurring horrific burns to raising one’s skin-cancer risk? When my son, now 11, was a toddler his nursery school teacher in London was badly burned after snoozing in a tanning bed; she spent a long time in hospital and recuperating at home. It was awful. These stories need to be told.
Money, or more precisely the lack of it, is at the heart of the imbroglio that finds the Securities and Exchange Commission accused by a federal district court judge of creating a “facade of enforcement” when it tried to reach a settlement with Bank of America on charges the bank misled its shareholders.
That’s the view of Arthur Levitt, who chaired the SEC longer than anyone else. Speaking this morning on Bloomberg Radio, Levitt, who is now a Bloomberg LP board member and an adviser to Goldman Sachs, said the SEC doesn’t have the resources to bring more civil enforcement cases to court, and that’s why it often seeks settlements with accused companies that allows the companies to typically pay a fine and neither admit or deny the charges.
David Oreck, founder of a well-known maker of vacuums and air purifiers, says he’s upset his namesake company is in bankruptcy. He says Nashville, Tenn.-based Oreck Corp. was a perfectly profitable company when he sold his stake in it to a private equity firm in 2004. He blames the firm, New York-based American Securities Capital […]