Monthly PE-Backed Bankruptcy List: The Mega-buyouts Are Beginning To Crack

Just four additional sponsor-owned companies filed for Chapter 11 bankruptcy protection in August, bringing the total number to 59. That’s ten more filings than all of 2008. Notably, the four latest filings are among the year’s largest. We knew the bankruptcies would increase this year, but we weren’t sure if they’d creep into mega-buyout territory, […]

Weekly Downgrade Wrap-Up

As usual, we have a week’s worth of ratings actions on the debt of sponsor-backed companies, via ratings agencies Standard & Poor’s Ratings Services and Moody’s Investors Service.

A rare occurrence this week: S&P lowered its ratings on an actual private equity firm: American Capital, the BDC/buyout firm that’s facing some creditor troubles, was downgraded to ‘B-’. No word on the progress of those creditor negotiations since the firm’s earnings call earlier this month (which also provided no update). However, the firm did register to sell a $1.5 billion mixed-shelf offering on August 20.

Company: American Capital Ltd.
Sponsor: -
Downgrade: S&P lowered the long-term counterparty credit rating on American Capital to ‘B-’ from ‘BB-’.
Highlights: “The rating action reflects the accelerated deterioration in the firm’s realized earnings and reported leverage in second-quarter 2009, as well as the weakening performance of its portfolio companies. The firm’s coverage of interest by realized earnings that are not dependent on investment exits declined significantly to 1.0x in the second quarter from 1.8x in the previous quarter and 2.9x for 2008. Moreover, while we had expected further portfolio depreciation, the unrealized write-downs in the second quarter, coupled with the slowdown in investment exits, has driven leverage to 2.3x–well above the 1.0x that had been required by covenants and is required for compliance with business development company (BDC) regulations.”

Laundry Room Chronicles: Reader’s Digest Debacle

Discussing the Reader’s Digest bankruptcy, with Carrie Lee in New York and me just a few paces from the suburban home office:

Update: I made a misstatement in the video, in saying that Alpha Media and Vibe had filed for bankruptcy protection. Neither one has done so. Instead, both PE-backed companies were written off by their equity sponsors and were either recapped (Alpha) and/or sold (Vibe). Major apologies.

Quote of the Day: An “Inspired” Write-Off

“We also thank our sponsor Ripplewood Holdings, who has provided inspired vision and stewardship over the last two and a half years, including during this process.”

- Mary Berner, CEO of The Reader’s Digest Association.

This was part of today’s announcement that Reader’s Digest will file for Chapter 11 bankruptcy protection, to facilitate a debt restructuring that would wipe out Ripplewood’s equity stake. Remember, it was just over two years ago that Ripplewood bought Reader’s Digest just two years ago for $2.4 billion, and it originally wanted to pay about $150 million more (which likely would have resulted in even more debt).

So I’m not sure if Berner was being ironic or was just the victim of some well-meaning — but poor-thinking — PR flack. Maybe she was just saying “Thanks for the paycheck,” since Ripplewood installed her as CEO in the first place…

Reader’s Digest To Sell Gareth Stevens

Reader’s Digest Association Inc., a portfolio company of Ripplewood Holdings, has agreed to sell the assets of K-12 educational publisher Gareth Stevens Inc. to Roger Rosen (CEO of Rosen Publishing) and Gary Spears (co-founder of Gareth Stevens). No financial terms were disclosed.

Anthony Vernon Leaving Ripplewood Kraft Foods

SAN FRANCISCO (Reuters) – Kraft Foods Inc (KFT.N) said on Monday that W. Anthony Vernon will become president of Kraft Foods North America in mid-August, taking over for Rick Searer, who is retiring. Kraft said Vernon, 53, worked most recently as a healthcare industry partner at private equity firm Ripplewood Holdings. Previously, he worked at […]

Reader’s Digest Examines Restructuring Options

NEW YORK (Reuters) – Privately held Reader’s Digest Association Inc hired Kirkland & Ellis as legal advisors to evaluate restructuring options, including a potential bankruptcy, according an online story from Bloomberg. The Tuesday story, which cited an unnamed person familiar with the situation, said that Kirkland & Ellis was asked to examine options such as […]

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PE Firm Mergers Are a Bad Idea. Here’s Why:

Could the acquirers become the acquirees? I’ve heard rumblings of private equity consolidation for a few weeks now, stemming from research done by law firm Simmons & Simmons. The study found that 79% of 700 surveyed PE pros expect increased consolidation in 2009.

I dismissed this as unlikely, but the topic continues to surface in conversations. There even are some trader rumors that Blackstone and KKR could acquire 3i. Would struggling buyout firms really merge with each other? At the very least, the image of PE pros nervously biting their nails in fear of a hostile takeover is ironic, since they’re usually the ones inflicting such fear on public company employees.

Either way, there are several issues with this idea, which I’ve laid out in a nice little list.

Reader’s Digest Cuts 8% of Workforce

NEW YORK (Reuters) – The Reader’s Digest Association Inc is cutting about 8 percent of its staff as it tries to strengthen itself against the world financial crisis. Reader’s Digest, which publishes 50 editions of its namesake magazine around the world as well as other magazines, books and videos, also will force some employees to […]

Banks End Talks To Sell Daewoo Electronics to Ripplewood

SEOUL (Reuters) – Creditors of Daewoo Electronics have ended talks to sell the South Korean appliance and TV maker to U.S. private equity firm Ripplewood Holdings and would look at ways to restructure Daewoo, a bank official said on Wednesday. The collapse of the talks marks the third failed attempt to sell loss-making Daewoo. Tighter […]

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