Tribune Deal Might Be Getting Messy

0

Contrarian investor Sam Zell rarely bets on an easy turnaround. That’s good, because his $12.7 billion buyout of Tribune Co. (TRB) could be messier than even he expected, BusinessWeek.com reports.


With the ink barely dry on the deal, the loans and bonds used to finance the transaction are, on average, trading for about 75 cents on the dollar. By that measure, investors have shaved almost $4 billion off the value of the media conglomerate since Dec. 20.


The credit crunch that has forced private equity firms to scrap or shelve about $114 billion in pending buyouts since the summer has now spread to completed deals & #260; & #366; & #260; & #366;. Like Zell, almost every buyout shop has a company with bonds or loans trading at dramatically lower prices. Overall, 31% of the bonds issued for buyouts since 2002 sell at a discount, estimates a study by Martin Fridson at New York debt-research firm FridsonVision. And some 40% of the deals at Bain Capital, Apollo Management, and Thomas H. Lee Partners have distressed debt. “[The companies] look like houses that are suddenly worth less than the homeowners paid for them,” says one investor in private equity funds. Says a THL Partners spokesman: “This study grossly misrepresents the performance of THL’s portfolio companies.” Zell and Bain declined to comment.

“WALKING ZOMBIES”


The implications are significant. Until recently, private equity players could bank on quick profits. Often buyout barons paid themselves a big dividend by issuing new debt just months after taking a company private. Today the debt markets are signaling that firms may have significantly overpaid for deals. That means they will have a hard time refinancing or selling those companies for a profit anytime soon, if ever. As a result, some of the megabillion-dollar buyout funds they started in the past several years & #260; & #350;the ones stuck holding these companies & #260; & #350;could turn out to be duds for the pension funds, endowments, and high-net-worth individuals that invested in them. “Many buyout deals look like walking zombies,” says Michael J. McGonigle, a high-yield bond fund manager at T. Rowe Price (TROW).



Read the full BusinessWeek.com story

.

No posts to display