Past Issues
April 9, 2012
A Look Back...and Ahead
Last time we had this feeling was April 2009. That's when we called the bottom of the loan market [http://www.churchillnet.com/ontheleft/pdf/OnTheLeft-042009.pdf]. Then the bellwether IPO was Rosetta Stone (opened at $25/share, peaked at $33, now trading at $10), which seemed to foretell improving equities and better overall market tone.
March 26, 2012
Hoard on the Street
Apple's recent decision to return money to its shareholders, after a sixteen-year dividend hiatus, got us thinking about what other companies are doing with their cash. In particular, what the implications are for strategic M&A. Turns out we weren't alone.
March 19, 2012
Here We Go Again
Without new toys to play with, two-year olds and leveraged lenders get into trouble.
A year ago the market snapped back impressively from post-crisis life support. We commented then how market conditions – investors with plenty of cash, lack of new LBO flow, and a touch of optimism – all contributed to the urge to refinance and reprice anything that wasn't nailed down.
March 12, 2012
High Times
"Seems only yesterday Snooki was getting drunk and into bar fights," said a late-night TV host, on news the Jersey Shore star was expecting. "Actually, it was yesterday."
March 05, 2012
Goodbye to the Monkey House
It was a bad week for monkeys.
First, Davy Jones, the youngest and most popular member of the 1960's pre-Fab Four TV rock band passed away at the age of 66. Then, the next day news reached us that the Bronx Zoo was closing the building that had housed its primates for 111 years.
Febuary 27, 2012
Whine and Dine
The latest pop culture salvo to rock culinary trends has come from an unlikely source. According to last Wednesday's WSJ, a White Castle restaurant in Lafayette, Indiana is serving Chardonnay with its sliders.
Febuary 20, 2012
Why Can't We Be Friends?
The traditional tension between investors seeking to deploy cash at attractive yields, and companies looking for the cheapest and most flexible financing possible - the old supply/demand thing - is generally constructive for the leveraged markets.
Febuary 13, 2012
Europe on $1 billion a Day
Capital, like water, finds its own level. European debt issuers seeking the relative safe haven of US markets for their financing needs are finding plenty of liquidity, not only in US syndicated loans, but other avenues as well.
Febuary 06, 2012
No Loan Left Behind (Last of a Series)
The fact that middle market companies generally do not have access to the same public markets as their broadly syndicated counterparts is often cited as a concern, especially in the context of refinancing leveraged loans coming due over the next several years.
January 30, 2012
No Loan Left Behind (Part Three)
The resolution of so many broadly syndicated loan maturities has indeed been impressive, highlighting how resilient and creative credit markets can be. But the wave of middle market loans coming due over the next few years presents different challenges.
January 23, 2012
No Loan Left Behind (Part Two)
Our mention of the Hostess bankruptcy last week brought out the junk food aficionados amongst our readers. One claimed the shelf life of a Twinkie was twenty years. Another reported a Colorado eatery serving deep fried Twinkies. A third confirmed this menu option, for years seeing those cholesterol boosters on a stick at the Texas State Fair.
January 16, 2012
No Loan Left Behind (Part One)
No sooner had we predicted headline risk would take a back seat this year to constructive fundamentals, when investors were jolted by a chilling story which further undermined market confidence, sending some players into a dizzying tailspin.
January 09, 2012
Is It December Yet?
Thus one trader on a major loan desk summed up his colleagues' mood. Apparently the prospects of slogging through 360-ish days of more dropping European designed shoes, sluggish new deal volume, anemic secondary trading activity, and political folderol has bankers already wishing they were looking at 2012 through the rear-view mirror.
January 02, 2012
Year of the Headline
We predicted exactly one year ago that 2011 would be remembered as the
Year of the Loan. And indeed, according to Thomson Reuters LPC, more loans were issued in the US ($1.86 trillion) than at any time since 1991.
December 12, 2011
Recency Bias
'For today, maybe the next couple weeks,' said one chief investment officer of a major money manager, 'it's enough of a resolution, but this will be a long drawn-out process.'Last Friday's EU summit produced an outcome that almost no one believed solved anything.
December 5, 2011
Powerball
More money flowed out of the Connecticut Lottery last week ($254 million) than out of retail loan funds ($201 million), though both investors and issuers are hoping to hit the loan market jackpot as they queue up for year-end holiday shopping specials.
November 28, 2011
Correlate This
Bull markets are all alike; every bear market is bearish in its own way.
Our rephrasing of Tolstoy's famous first line of Anna Karenina seemed to capture the mood as each capital market has marched to its own drum since early August.
November 21, 2011
Moneyball (Part Two)
While the first half of the Yale School of Management's Private Equity conference focused on the challenges of growing portfolio companies in a non-growth world, attention then turned to the industry itself: how well will financial sponsors do?
November 14, 2011
Moneyball (Part One)
Where does growth come from in a non-growth world? That was the central question posed at the Yale School of Management's Private Equity conference last Friday.
November 7, 2011
Practicing Safe Spreads
During his keynote at LSTA's annual conference last week, former Sen. Judd Gregg – to highlight the risk of unfettered healthcare costs – reported the world's largest employer (after the Chinese army and Indian Railway) was the UK's National Health Service.
October 31, 2011
Seconds Anyone? (Last of a Series)
As we wrap up our series on second-liens, let's look at dynamics both investors and issuers are considering as they examine this junior secured asset class.
While larger second-liens are generally features of bull markets, they are also proxies for high yield bonds. "When junk dies," one buyer told us, "seconds are born." But as bond yields have risen amid economic uncertainty and volatility, liquid loan spreads widened as well.
October 24, 2011
Seconds Anyone? (Part Four)
When is a second-lien not a second-lien?
Turns out that's not an idle question when it comes to the relative position in the capital structure of lenders who carry a putative second-lien security interest in the borrower's collateral. That's because "second-lien" is short-hand for a number of variations on the theme of the junior secured assets.
October 17, 2011
Seconds Anyone? (Part Three)
As if we didn't have enough to worry about. Now comes news that geneticists have recreated the DNA of the deadly microbe which in 1350 wiped out half the population of Western Europe. "This is a major technological step forward," declared one researcher.
Besides imagining the potential for scary laboratory mishaps ("Next time, just hand me the test tube"), the vision of nasty things returning to plague us was a reminder of revived investor worries about second-lien behavior emerging from the Great Recession.
October 10, 2011
Seconds Anyone? (Part Two)
An astute reader of OTL responded last week with thoughts on our report that neutrinos might have broken the speed of light. "Very cool stuff," he said. "But did you also know physicists say this breakthrough means that time travel is now actually possible?"
News to us. But reflecting further on the implications of revisiting history – aside from our desire to retake one or two SAT tests – we decided a quick jog down memory lane might provide welcome perspective in our continuing series on the second-lien loan.
October 3, 2011
Seconds Anyone? (Part One)
Defying the run of old news out of Europe comes word from scientists in an underground cavern in Italy. Their surprising discovery of the hyper-velocity of sub-atomic particles called neutrinos may overturn one of Einstein's key tenets of theoretical physics.
"If it is true," said one expert, "then we truly haven't understood anything about anything."
Anyone shocked an object can move faster than the speed of light has evidently never set an Oreo in front of a two-year old. But the relative behavior of cosmic specks brought to mind recent interplay between first and second-liens in the leveraged loan market.
September 26, 2011
The Sky is Not Falling
It seemed fitting somehow. After hurricanes, earthquakes, and the new season of Jersey Shore were sent to bedevil us in this season of Biblical-scale plagues, the latest insult was news that a school bus-sized satellite circa 1991 could fall on our heads.
While NASA was unable to provide guidance on the 'when' or 'where' of the space junk's re-entry on terra firma ("It's too early to predict with any certainty," a helpful spokesman reported), our resulting weekend anxiety echoed that of the global capital markets.
September 19, 2011
Discovery Channel
"The broadly syndicated loan market is very attractive now," one veteran portfolio manager told us Friday. Of course, that assessment depends what side of the market you're on.
September 12, 2011
Save the Whales
Last Thursday's edition of the WSJ had a photo of an "exhibit maintenance supervisor," one Jake Adams, in a crane vacuuming the ten-ton, 100 foot long suspended model of the blue whale at the American Museum of Natural History. The iconic cetacean apparently collects a fair bit of dirt hanging up there and was due for its biannual dust bust.
Besides wondering what Mr. Adams' conversations that night over the dinner table might have sounded like ("And Daddy, what did you do today?"), the periodic cleaning of the largest known animal's replica reminded us of the state of the big deal leveraged market. .
September 5, 2011
Port in the Storm
It was early Sunday morning on the southern Rhode Island coast, the brunt of Hurricane Irene still hours away, when the electricity went off in our vacation rental.
We had expected such an occurrence for days, but no proximate cause accompanied the event. As we toured the area later that afternoon, no uprooted trees were evident, no branches hammocked on overhead wires, and no telephone poles in the streets.
August 15, 2011
A Tale of Four Cities (Last of a Series)
As Europe reeled amid bank troubles in France, riots in the UK, and budget slashing in Italy, FT reported a relatively calm port in the storm for investors. "If you had to buy European assets," it quoted a BNY Mellon analyst observing, "you would buy Nordic currencies, stock and bonds."
August 8, 2011
A Tale of Four Cities (Part Three)
Last week news reached us of a Swedish man arrested in the coastal town of Ängelholm after trying to build a nuclear reactor in his kitchen. Seems Richard Handl had been working on the experiment for six months, even publishing a blog of his progress. His activities surfaced only after he contacted authorities to inquire if his project was legal.
August 1, 2011
A Tale of Four Cities (Part Two)
Of the Nordic countries, only Denmark and Sweden are members of the EU and none are on the euro. As we traveled in Scandinavia last month, pondering the discrepancy between the relative stability of those economies and the turmoil besetting the Eurozone, we wondered whether not being in the Euroclub might actually be a good thing today.
July 25, 2011
A Tale of Four Cities (Part One)
Turkey. That was the original plan. But with a two-year old in tow, it seemed a more prudent course to steer clear of that troubled part of the world. So with safety a top priority, for this two-week July family vacation, we instead chose the quietest, least controversial, most politically stable place on the planet. We went to Oslo, Norway.
July 18, 2011
State of the Mezzanine Market (Last of a Series)
Mezzanine capital is equity dressed up as debt, and vice versa. In good times it offers investors tidy double-digit returns. In a crunch, cash interest payments can go dormant, providing issuer and private equity sponsor a cushion until profitability returns.
July 11, 2011
State of the Mezzanine Market (Part Four)
We ran into an old friend last week at the Buyouts conference in Chicago. He runs his own middle market mezzanine investment firm, so we were particularly interested in his reaction to our continuing series on the state of the junior capital universe.
July 4, 2011
State of the Mezzanine Market (Part Three)
More than competition from alternative capital sources such as unitranche or second lien, what's affecting mezzanine debt arrangers today is a combination of technical factors. "There's no deal flow and no yield," bemoans one player. "If Libor rises, that would help. And more deals would mean more slots for everybody."
June 27, 2011
State of the Mezzanine Market (Part Two)
"And mezz is dead?" one of our friends, who runs a top middle-market mezz fund, emailed us last week, attached to the news that cash exiting high-yield retail funds reached more than $3.4 billion – smashing an eight-year record for weekly out-flows.
June 20, 2011
State of the Mezzanine Market (Part One)
Beatles tribute guitarist Mark Vaccacio passed away last week, leaving three tips to a happy life: "First: Cleanliness is next to godliness," he told a NY Times reporter in April. Then, "Read, read, read, read, read." Finally, "Dress in layers."
June 13, 2011
Junk Rethunk
News last week of two additions to the periodic table was a long time coming. Their existence being so ephemeral, it took five years for (as yet unnamed) elements 114 and 116 to be officially confirmed. "We have to take things one atom at a time," the chief chemist declared.
June 6, 2011
The State of Asset Based Lending (Last of Three Parts)
For all the hubbub covenant-lite structures have generated among participants in the resurgent loan market, one category of lenders is quite comfortable sans maintenance tests. Asset-based loans, after all, are the original covenant-lites.
May 30, 2011
The State of Asset Based Lending (Part Two)
The same sell-side-friendly behavior driving the institutional market these days is trickling into the hard-asset crowd. While ABL discipline hasn't quite been jettisoned, it's eroding at the margin, as we found speaking with top ABL players recently.
May 23, 2011
The State of Asset Based Lending (Part One)
Most of the attention in leveraged loans these days has gone to the cash-flow crowd. With few exceptions, little has been written about asset-based lending. Yet buyout practitioners are now making full use of this decades-old, but less-publicized corner of the capital markets.
May 16, 2011
Why People Matter: A Response
Among the more compelling emails we received on our "importance of people" series last month was from Tim Kelly at Adams Street Partners. Tim was a panelist on PE management succession at ACG Intergrowth. That roundtable was one of the original inspirations for those articles.
May 9, 2011
Defying Gravity
Amidst more weighty events last week, came news that physicists had again proved Einstein right. In an experiment which took fifty-two years to complete, a team from Stanford University used four spinning crystal balls to demonstrate that the Earth's mass warped its surrounding space by 1.1 inches, thus confirming the theory of relativity.
May 2, 2011
Undiscovered Discount Events
Undiscovered Discount Events Our mention last week of "snoozing air traffic controllers," as one of many headline headwinds, met with some chuckles, but also a clarification from one reader. "The FAA won't allow naps," he told us. "Now they'll be called 'restorative energy breaks'."
April 25, 2011
American Standard
When S&P took the unprecedented step last week of placing the US on negative watch for a ratings downgrade from its once-unassailable triple-A perch, investors reacted the same way they have all year to the drumbeat of bad news: with a yawn.
April 18, 2011
Regulation Nation
For investors of both corporate debt and equity, regulatory change has always been a risk factor. Certain industries – telecommunications, food and airlines, for example – have always been prone to high levels of government scrutiny. The buy-side has accordingly hard-coded "regulatory risk" for those sectors into their analyses.
April 11, 2011
t's All About the People (Last of a Series)
More emails came to us from readers moved by our thoughts on why people matter.
This from a senior trader at a securities firm: "Your comments remind me of some of the best advice I received coming out of college: work with people you like and enjoy – end of story. If you don't like the people you work with, it makes it nearly impossible to achieve fulfillment in your career."
April 4, 2011
t's All About the People (Part Two)
Seems like we struck a chord. Our column last week (View Part One) about revelations during this year's ACG InterGrowth conference in San Diego generated more feedback from readers than anything we've written since our "meat loaf" story last October.
One such subscriber, a top consultant to PE shops on professional development, had this to say: "People and talent are indeed the most important elements in any business." He continued. "We like to quote Jim Collins (the ACG keynoter), that the most important decisions aren't 'what' decisions, but 'who' decisions."
March 28, 2011
t's All About the People (Part One)
We attended this year's ACG InterGrowth conference fully prepared to share war stories with fellow market combatants about the latest Libya/Japan inspired investor pullback. Or about the "on hold" mode M&A activity seems to be in. Or about the fierce wave after wave of repricings until recently being endured in the broadly syndicated loan market.
March 21, 2011
Unknown Unknowns
In our trail riding days, our otherwise trusty horse could use any excuse – a garden hose, a snapping twig – to rear up, dump us, and trot back to the safety of his barn.
Our equine adventures came to mind as we saw debt capital markets balking at the sight of real and imagined terrors last week. $14 billion of loans and junk bonds were shelved, as arrangers scrambled to figure out how to keep their deals from being ejected.
March 14, 2011
March Madness
It certainly was a strange sight. Driving down the normally sedate main drag of Greenwich, CT last Friday around lunchtime, we witnessed a long line of waiting people stretching halfway up the sidewalk.
March 7, 2011
High on Yield
We're just not going along with it.
We're referring to the business media bandwagon everyone jumped on last week invoking the name of a certain badly behaving Hollywood celebrity, no matter what the context. From Barron's to WSJ – even our best friends in capital markets reporting – commentators couldn't help somehow including joking references to You-Know-Who.
February 28, 2011
A Bigger Sideline
On Friday we decided to take a break from what our Norwegian grandmother would have called the "funny business" going on in capital markets by ducking into the 17th Annual Private Equity and Venture Capital Conference at Columbia University.
Turned out to be a refreshing day of panels and networking, but also fortified us with some good information about private equity investing that had gotten lost amid the refi and recap hubbub over the last few months.
February 21, 2011
Double Bouble
Valentine's Day came and went without the gift we really wanted: new deal flow.
Thanks to a mad dash for the exits in December – when sellers thought they had to beat a year-end tax deadline – 2010's volume for middle market LBO deals soared to $3.4 billion from a paltry $800 million in 2009, according to S&P.
February 14, 2011
Scary Movie
The NY Times reported on Thursday that an NYU professor, who had a video camera surgically implanted in the back of his head last November as part of an art project called "The 3rd I," had to remove the device because his body had rejected it.
If that camera is still available, we'd really like to try it. Given events in the leveraged loan market these days, we'd much rather be looking backwards that forwards.
February 7, 2011
Par Wars
It was our favorite Super Bowl ad. The kid in the Darth Vader costume tries his telekinetic powers on various household items – including the family dog – fruitlessly, until the VW Passat finally yields (with parental assistance) to the Force.
The broadly syndicated loan market has also gone over to the Dark Side.
January 31, 2011
eBuy
We find it amusing how often "investor demand" is used as the excuse for the worst excesses of the broadly syndicated loan market.
Sure, we understand the whole supply/demand, free markets, capitalism thing. And we totally get that when cash pours into a market the way it has over the last couple months (another almost $1 billion to retail loan funds last week), extreme stuff happens.
January 24, 2011
Refinance This
Scientists from Japan's Kinki University unveiled plans last week to clone a woolly mammoth, a species extinct for over ten thousand years. The idea is to inject genetic material from a frozen mammoth carcass found in Siberia into live elephant egg cells.
What struck us about this startling news – besides our chagrin the experiment won't first be tried on the more recently preserved former Graceland inhabitant – was how this everything-old-is-new-again theme resembled the latest doings in the leveraged market.
January 17, 2011
Confidence Game
Is it too early to be disappointed in 2011 deal flow?
We realize this is a little like our two-year old daughter asking, as we're backing out of the garage: "Are we there yet?"
January 10, 2011
Year of the Loan
The Chinese New Year doesn't officially begin until February 3rd, but we thought we'd kick it off a little early. Indeed, we were hoping the Year of the Rabbit would earn its name by jumping off to a quick start, at least in the leveraged loan market. But so far, it's been more Year of the Tortoise.
January 3, 2011
Take It to the Bank: OTL's 2011 Forecast Issue
Perhaps it was the drumbeat of prediction lists. Or it could have been the couple of emails which poured in last week seeking our wisdom and guidance. Maybe we just felt particularly clairvoyant after multiple New Year's Eve cocktails. But something compelled us to go beyond our final column of 2010 and jot down our capital markets forecast for the coming year.