Initial Claims 334K vs 320K consensus; prior revised to 325K from 322K
Personal Consumption 1.4% vs. +1.5% consensus
Chain Deflator-prel 2.7% vs +2.7% consensus
Core PCE 1.3% q/q vs. +1.4% consensus
GDP-prelim 4.0% vs +4.1% consensus; Advanced GDP was 3.4%
Sen Dodd says he plans to bring in representatives of credit ratings co’s – Bloomberg TV
He also says he’s worried that mortgage problems are spilling over into prime loans.
Gapping up: SIGM +18.5%, AGIX +12.0%, SSTR +11.4%, VIP +7.1%, FCEL +5.9%, CHINA +4.0%, TIF +3.9%, CIEN +3.8%, SNUS +3.8%, TIF +3.0%, TASR +3.0%, NOVL +2.4%, MOT +2.2%… Gapping down: CWTR -13.7%, ACH -6.9%, HRB -4.7%, SHLD -3.5%, PSS -3.4%, DB -3.3%, BCS -3.3%, SCON -2.7%.
Fed says adding temporary reserves via 14-day repo – Reuters
Fed Funds Rate trade at 5.5% at time of 14-day repo – Reuters
S&P warns of investment bank fallout should 1998 be repeated – Times of London
Times of London reports profits at the big investment banks of Wall Street and the City of London will collapse by 70% in the second half if the credit crunch proves as fierce as in 1998, Standard & Poor’s said yesterday. The debt rating agency predicted that revenues would collapse by 47% in the second half if the dislocation followed a similar pattern to the dark year when Russia defaulted and the hedge fund Long-Term Capital Management collapsed. “There’s a strong sense of deja vu about the environment for securities firms,” Nick Hill, analyst with S&P, said. “This time, rather than a sovereign debt default by Russia, it is rising delinquencies on US sub-prime mortgages that have sparked volatility.”
Bond Watch: Winding Back Up
The market is recovering some of the lost ground from late yesterday with not much behind the move beyond the safe-haven bid on dips & technicals as the selling may have gotten a little ahead of itself. The 2-10-yr yield spread is tipping back out at 43.6 as curve trade remains biased toward steepeners ahead of data. Bond prices in the EuroZone were soft despite slightly weaker-than expected data while in Japan, bonds were given a boost by strong demand on a 2-yr JGB auction. Treasuries will at last have some data to work with today, though nothing top tier as the expeected upward revisions to Q2 GDP are likely to be given rearview status. Treasury sells $13B of 5-yr notes later & demand should be strong if the previous auctions this week are any indication. In the meantime, trade will be led by technicals, equities & newswires, but not necessarily in that order. The buck grabbed back some ground against the euro but is meeting strong bids on the common currency below 1.3600 while against the yen the dollar is falling back after failing to take out offers above 116.2500. Spot gold is slipping at665.09 (-2.51) while crude oil is near flat at 73.58 (+0.07). Today has Q2 GDP revisions & initial jobless claims (8:30) along with help-wanted index (10). The euro is at 1.3608 & the yen is at 115.5800 while the 10-yr is +05/32nds yielding 4.537%.
Banks raise funds to buy leveraged debt – TheDeal.com
TheDeal.com reports in an attempt to capitalize on a credit crunch that has depressed prices for leveraged loans in the secondary markets, Goldman Sachs (GS) and Lehman Brothers (LEH) are actively raising funds to buy leveraged loans that trade at discounts in the secondary market, according to several sources. The banks’ thinking mirrors that of several private equity funds that have recently been angling to purchase buyout-related loans at steep discounts from banks’ trading desks, based on the belief that much of this debt is undervalued and offers attractive yields. One banker at a rival firm said the banks are doing nothing untoward, but are astutely taking advantage of a mkt opportunity to make more money and mitigate losses taken from the leverage commitments. “I wish my bank was doing something like this,” the banker said.
Yen strengthens against dollar & euro on Australian hedge fund bankruptcy
Bloomberg.com reports that the yen rose, rebounding from the biggest decline against the dollar since Jan 2005, after a bankruptcy filing by an Australian hedge fund prompted investors to sell higher-yielding assets purchased with loans from Japan. Japan’s yen was the best performer of the 16 most-active currencies, gaining by the most against the Australian and New Zealand dollars, after Sydney-based Basis Yield Alpha Fund said U.S. home loan defaults had wrecked the value of its debt holdings. The yen also rebounded from a 2.3% decline vs the euro yesterday, when rallying U.S. stocks prompted investors to resume carry trades.
‘Conduits’ in Need of a Fix – WSJ
WSJ reports the subprime-mortgage downturn keeps showing up in unexpected places in unusual ways. The latest are conduits, which have put some of the world’s biggest banks under the spotlight for their lucrative but little-known and poorly disclosed operations. Other U.S. banks haven’t had problems so far, but investors are anxious, given a dearth of information. “We cannot rule out ‘black holes’ at certain banks,” Merrill Lynch (MER) said in a recent report. What is especially troubling for investors is they have little information to help gauge the depth of the problem. Citigroup (C) for example, disclosed in its second-quarter results that its off-balance-sheet conduits had about $77 bln in assets and liabilities but gave little other information about them. Citigroup declined to comment. In its most recent quarterly filing, J.P. Morgan Chase (JPM) said off-balance-sheet conduits that it administered had issued about $54 bln in commercial paper.
FRE Freddie Mac reports Q2 (63.25 )
Reports Q2 (Jun) earnings of $1.02 per share, includes multiple charges and gains, may not be comparable to the Reuters Estimates consensus of $0.88; total revenues rose 4.8% year/year to $2.25 bln may not be comparable to the $1.49 bln consensus. Co says it progresses in remediation efforts and issues Q2Y07 financial reports ahead of previously announced target. CEO says, “Our business volumes for the quarter were strong, with continued growth in our credit guarantee portfolio and improved commitments for our retained portfolio. And we are seeing a shift in the market back to more traditional products, including larger volumes of fixed-rate mortgages. On the credit front we are seeing weakening, but we are well positioned relative to the overall marketplace to weather the ongoing disruptions in the mortgage markets and emerge as an even stronger player. Most important, we are working with our regulator, our customers and others to do our part in developing a market oriented response that will help provide stability, liquidity and affordability to the national housing and mortgage markets.”
Credit Agricole: U.S. subprime mortagages will have a “limited impact” – Bloomberg
Bloomberg reports co said mkt turbulence sparked by defaults on U.S. subprime mortgages will have a “limited impact” on the bank, and that results at its securities unit in July and August were “similar” to those a year earlier. Credit Agricole said that neither its asset-mgmt nor investment-banking divisions directly hold U.S. subprime loans. Calyon, the securities unit, has a portfolio of asset-backed collaterized-debt obligations that are being structured before being sold to clients, the bank said. The asset-backed portfolio contains 586 mln euros of subprime loans.
Bank of England loaned 1.6 bln Pounds at 6.75% – Bloomberg.com
Bloomberg.com reports that the Bank of England loaned 1.6 bln pounds ($3.2 bln) at its penalty rate of 6.75%, suggesting commercial banks are still reluctant to lend to each other after the collapse of U.S. subprime mortgages. The money lent yesterday is the most since July 2, when the central bank lent 1.93 bln pounds under the standing facility, according to Bank of England data. The facility was last tapped at 6.75% on Aug. 20, when Barclays (BCS) borrowed 314 mln pounds after a loan from HSBC Holdings (HBC) was delayed. The central bank declined to identity the borrower. The pound fell on concern the credit crisis is infecting assets held in the U.K. The Bank of England hasn’t auctioned any additional money or changed any of its lending rates, unlike the Federal Reserve or the European Central Bank. “It is a massive number, but it’s important to understand if it is a single institution or a number of borrowers,” said Alan Clarke, an economist at BNP Paribas SA in London… The Bank of England, which announced the loan in its daily report on money market operations in London today, didn’t provide the name or number of borrowers. A spokeswoman for the central bank declined to comment. Barclays spokesman Alistair Smith, HSBC spokesman Richard Lindsay, Deutsche Bank spokesman Ronald Weichert and Commerzbank AG spokesman Maximilian Bicker declined to comment.
Lehman cuts their ests on select investment banks
Lehman cuts their Q3 and Q4 ests and 2008 ests on Morgan Stanley (MS), Merrill (MER), Goldman (GS), and Bear Stearns (BSC). The firm cites dislocation in credit and mortgage markets.
ZLC Zale beats on EPS, revs; issues Y08 guidance (20.81 )
Reports Q4 (Jul) net of breakeven, excluding non-recurring items, $0.14 better than the Reuters Estimates consensus of ($0.14); revenues fell 0.6% year/year to $488 mln vs the $478.1 mln consensus. Co issues guidance for FY08, sees GAAP EPS of $1.11-1.16, and including the impact of the increase in the unrecognized revs on the balance sheet, co sees EPS of $2.11-2.16, may not be comparable to $1.47 consensus. Co sees earnings growth to accelerate to approx 30% per year in 2009-2011.
SHLD Sears Hldg reports Q2 results in-line with reduced guidance, light on revs (145.61 )
Reports Q2 (Jul) earnings of $1.17 per share, $0.04 better than the Reuters Estimates consensus of $1.13; revenues fell 4.7% year/year to $12.2 bln vs the $12.32 bln consensus. Co also says “We are disappointed with our second quarter results. Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations,… In response, we are enhancing our marketing message to more clearly articulate the advantages of our products and service offerings, including our recently announced Ultimate Appliance Promise.” (Briefing.com note: SHLD guided below consensus for Q2 in July, co said they would report EPS of $0.98-1.24, consensus at the time was $2.12. In early August the company tightend this guidance to $1.07-1.17 vs a consenuss at the time of $1.13.)
WSM Williams-Sonoma: 2Q07 beats ests; 2H07 outlook reaffirmed – Nollenberger (32.70 )
Nollenberger notes they while they are encouraged by the stronger than expected 2Q results and the improvement in the Pottery Barn brand, they remain concerned that the difficult macro environment, high inventory levels, and competitive landscape will continue to serve as headwinds in 2H07. As such, firm does not believe current expectations are overly conservative. Although they expect the shares to react favorably in the near term given the stronger than expected 2Q, firm believes the shares are fully valued at with the stock trading at 15x their 2008 estimate of $2.10. Firm recommends investors remain on the sidelines in the near term.
TIF Tiffany & Co beats by $0.10, revs above consensus; raises FY08 EPS guidance (48.12 )
Reports Q2 (Jul) earnings of $0.45 per share, excluding non-recurring items, $0.10 better than the Reuters Estimates consensus of $0.35; revenues rose 19.5% year/year to $662.6 mln vs the $645.7 mln consensus. Co issues upside guidance for FY08, sees EPS of $2.22-2.27, ex items vs. $2.14 consensus, prior guidance $2.10-2.15, ex items.
Buyers: Wright Express (WXS 35.50) Directors (2) bought 3K shares at $35.05… Weingarten Realty Investors (WRI 39.40) Chairman bought 10K shares at $38.69… Venoco (VQ 15.50) Directors (2) bought 16K shares at $16.20 – $16.25… United Retail Group (URGI 9.01) 10% Owner Crescendo Partners II LP bought 120,400 shares at $8.94… RPC (RES 13.52) 10% Owner RFA Mgmt Co bought 204,300 shares at $13.16… Access National (ANCX 8.17) Directors (4) bought 13,450 shares at $7.50… NBTY (NTY 36.41) Director bought 2K shares at $37.29… Electronic Clearing House (ECHO 10.15) Director bought 100K shares at $9.32… P.A.M Transportation Services (PTSI 17.92) Director bought 5K shares at $17.95… Polypore Int’l (PPO 12.73) CEO bought 10K shares at $12.91; Officer bought 4K shares at $13.03… Knology (KNOL 14.92) 10% Owner Farallon Capital Partners bought 29,078 shares at $14.53… Advent Software (ADVS 40.30) SPO Advisory bought 162,700 shares at $39.83 – $39.98… Centerline Holding (CHC 15.65) Director bought 34,658 shares at $15.19… Mattel (MAT 22.06) Director bought 5K shares at $21.80… ValueVision Media (VVTV 7.83) CEO bought 35K shares at $7.92 and 110K shares at $8.06; Directors (2) bought 38,500 shares at $7.75 – $8.00. Sellers: Western Refining (WNR 52.03) Officer and Director sold 50k shares at $52.36 – $52.89… RenaissanceRe Holdings (RNR 57.02) President sold 68,116 shares at $58.57… Monolithic Power Systems (MPWR 20.34) Director and 10% Owner InveStar Capital sold 90K shares at $20.05… Smart Balance (SMBL 9.35) 10% Owner Stark Offshore Mgmt sold 43,216 shares at $9.62… McDermott Int’l (MDR 90.98) Officer sold 37,500 shares at $88.19… EnPro Industries (NPO 41.82) 10% Owner Steel Partners II LP sold 13,200 shares at $42.19… Treehouse Foods (THS 27.13) Director sold 14,600 shares at $27.87… Mueller Water Products (MWA 12.75) 10% Owner Fairholme Capital Mgmt sold 60,100 shares at $14.90… Key Technology (KTEC 26.50) Director sold 23,400 shares at $26.63… Pentair (PNR 35.52) Director and Officer sold 27,027 shares at $35.17… Hansen Natural (HANS 44.66) Director sold 42,500 shares at $43.97… Estee Lauder (EL 41.63) 10% Owner G. Lauder sold 141,868 shares at $42.54… Vocus (VOCS 26.00) Director sold 54,400 shares at $25.69… Mellanox Technologies (MLNX 16.28) Officers (2) sold 79,200 shares at $16.50 – $16.55; Director sold 100K shares at $16.55… Holly (HOC 65.37) Director sold 27,900 shares at $62.26 – $64.68… Heelys (HLYS 8.99) Director sold 60,860 shares at $9.30… LSB Industries (LXU 22.07) Officer sold 40K shares at $22.58.
CIEN Ciena beats by $0.11, ex items (38.42 )
Reports Q3 (Jul) earnings of $0.41 per share, excluding non-recurring items, $0.11 better than the Reuters Estimates consensus of $0.30; revenues rose 5.9% year/year to $205 mln vs the $203.3 mln consensus. Co said, “Our strategy of prioritizing our investments and targeting high growth market segments has enabled us to grow faster than the overall market for the past two years, and at this point, we are on track to do so once again with annual revenue growth of up to 37 percent in fiscal 2007… At the same time, as evidenced by this quarter’s performance, we remain focused on maximizing the operating leverage in our business model.”
CFC Countrywide: Examining earnings and book value under hostile mortgage market conditions – Credit Suisse (19.81 )
Credit Suisse notes that in light of the hostile financing environment and tumultuous secondary mortgage market conditions, they have reviewed CFC’s business model and have dramatically tempered their outlook for the co. Firm is reducing their FY07 est to a loss of $0.58 from $3.00 per share, owing to the sizable disruptions in the financing and secondary markets in the third quarter leading to writedowns of residuals. They expect CFC’s mortgage banking profitability, as well as its thrift to suffer a disproportionate share of the decline in earnings. Firm is also revising their FY08 est to $1.60 from $3.75, owing to a sizable decline in originations, continued pressure on mortgage production profitability from lower gain on sale margins and rising credit costs, which should most severely impact Countrywide, FSB.
Upgrades: Cowen upgrades Laboratory Corp (LH 75.08) to Outperform from Neutral… RBC upgrades Canadian Pacific Railway (CP 67.25) to Outperform from Sector Perform. Downgrades: J.P Morgan downgrades Grupo Finaciero Galicia (GGAL 7.98) to Neutral from Overweight… Cowen downgrades Anadys Pharma (ANDS 2.10) to Neutral from Outperform. Miscellaneous: Kaufman Bros. initiates Popular (BPOP 12.24) with a Hold and sets a $13 tgt, based on direct exposure to approx $2 bln of Alt A residential mortgage loans originated by its U.S. operations, and approx $250 mln of exposure to another $4 bln of collateralized, securitized mortgage pools, which it originated over the past several years… SunTrust initiates Penn Virginia (PVA 39.25) with a Buy and sets a $54 tgt, based on outstanding exposure to the U.S. natural gas market and an appropriately diverse E&P business model comprising a blend of exploration, development and acquisitions… BB&T initiates Coleman Cable (CCIX 13.12) with a Buy and a $22 tgt saying misunderstood Q2 results creates a buying opportunity… Piper Jaffray initiates Oscient Pharma (OSCI 2.94) with an Outperform… RBC initiates VMware (VMW 68.20) with a Sector Perform…. Morgan Stanley initiates Dice Holdings (DHX 9.57) with an Overweight and a $15 tgt… JMP initiates CDC Corp (CHINA 8.28) with an Outperform and a $10.50 tgt saying the co is a holding company based in Hong Kong with subsidiaries in the software, online gaming, mobile services, and internet industries. The firm says the co trades below the value of the sum of its parts, and pending IPOs of CDC Software and CDC Games may help unlock value.
Upgrades: Merriman upgrades Taser (TASR 13.60) to Buy from Neutral, as they believe base revenues are continuing to ramp higher providing a solid revenue floor, TASER C2 will be a 2H07 revenue driver and an attractive re-entry point has been provided following a 25% drop in shares since late-July… Wachovia upgrades IDACORP (IDA 32.29) to Market Perform from Underperform, based on valuation and believe the regulatory backdrop is improving, as evidenced by a move to a forecast test year for ratemaking purposes and a recent pension adjustment decision… Wachovia upgrades Atmos Energy (ATO 27.98) to Outperform from Market Perform, as they believe shares could reverse their downward trend as project/rate case announcements are made over the next several months while near-term catalysts coupled with current pricing levels could provide 15%-20% of total return potential over the next year… Lehman upgrades Motorola (MOT 16.47) to Overweight from Equal Weight saying it expects rising production in the third quarter to signal a recovery in the the group’s phone unit…. Lehman Bros. upgrades Ethanol Sector to Positive from Neutral and upgrades Verasun (VSE 12.24) and Aventine Renewable Energy Holdings (AVR 13.70) to Overweight from Equal-weight saying impending legislation in the Congress could provide potential meaningful upside surprise to the stocks… Miscellaneous: Kaufman Bros. initiates Popular (BPOP 12.24) with a Hold and sets a $13 tgt, based on direct exposure to approx $2 bln of Alt A residential mortgage loans originated by its U.S. operations, and approx $250 mln of exposure to another $4 bln of collateralized, securitized mortgage pools, which it originated over the past several years… SunTrust initiates Penn Virginia (PVA 39.25) with a Buy and sets a $54 tgt, based on outstanding exposure to the U.S. natural gas market and an appropriately diverse E&P business model comprising a blend of exploration, development and acquisitions.
TMA Thornburg Mortg announces offering of up to $500 mln of Series F cumulative convertible redeemable preferred stock (11.16 )
Co announces the launch of an underwritten public offering of Series F Cumulative Convertible Redeemable Preferred Stock, with gross proceeds of up to $500 mln, plus a 15% over-allotment option. The anticipated dividend rate will be the higher of 10% or the dividend yield on the common stock, and the anticipated conversion price will be $11.50 per common share… With the new capital infusion from this offering, combined with the actions taken earlier this month to enhance its liquidity position (as disclosed in the company’s August 20 press release), Thornburg Mortgage believes it is positioned to capitalize on what it expects will be a more profitable mortgage market. It also reaffirmed its intention to pay its second quarter dividend on September 17, 2007. TMA resumed funding existing loans in its pipeline this week. The co is also negotiating the financing of approximately $1.4 bln of prime hybrid ARM loans in a securitization transaction. The co has also revised its estimated capital loss downward following the sale of its $20.5 bln of assets from a previously announced $930 mln to a currently estimated $863 mln. The co believes that there may be additional recoveries, which could further decrease its estimated aggregate loss. Going forward, Thornburg Mortgage anticipates an increased use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing. At August 17, 2007, 56.9% of Thornburg Mortgage’s mortgage assets were permanently financed by collateralized mortgage debt transactions as compared to 34.9% at June 30, 2007. In summary, this offering further enhances TMA’s liquidity position and allows the co to begin to return to its more normal operations of originating mortgage loans and acquiring high quality mortgage-backed securities for its portfolio.
Sensex ends up 86pts at 15,079 – The Business Standard
The Business Standard reports the Sensex opened with a positive gap of 176 points at 15,169, and surged to a high of 15,201 on the back of firm global markets. However, the index soon pared gains and touched a low of 15,054. The index, thereafter, exhibited range-bound movement for most of the trading day. The Sensex finally settled (provisional) with a gain of 86 points at 15,079.
Global stocks advance, led by Credit Agricole, InBev, Esprit – Bloomberg.com
Bloomberg.com reports stocks in Europe and Asia rose on speculation earnings will increase even as turmoil in the credit markets threatens to hamper economic growth… National benchmarks gained in all 17 western European markets that were open. Germany’s DAX rose 0.4%, France’s CAC 40 climbed 1.1% and the U.K.’s FTSE 100 increased 1%.
Asian stocks gain on Esprit, Cnooc earnings; BHP, Sony rise – Bloomberg.com
Bloomberg.com reports Asian stocks advanced after Esprit Holdings and Cnooc reported profit that beat estimates, reducing concern earnings in the region will be hampered by a slump in the U.S. housing market… The Nikkei 225 Stock Average added 0.9%, while Hong Kong’s Hang Seng Index rose 2.3%.
HRB H & R Block beats by $0.01; Certain closing conditions of agreement to sell Option One currently are not being met. (19.50 )
Reports Q1 (Jul) loss of $0.34 per share, $0.01 better than the Reuters Estimates consensus of ($0.35); revenues rose 11.2% year/year to $381.2 mln vs the $449.6 mln consensus. Co issues in-line guidance for FY08, sees EPS of $1.30-1.45 vs. $1.33 consensus.Co also announced that it is engaged in discussions with Cerberus Capital Management, L.P. in an effort to modify the agreement H&R Block entered into in April to sell Option One Mortgage Corp. to Cerberus. Certain closing conditions of this agreement currently are not being met. Consequently, some of the key components of the discussions currently are: The closing conditions requiring Option One to have $2 billion in loans funded within 60 days of closing and $8 billion minimum in warehouse lines would be waived, with certain other closing conditions being waived or modified. H&R Block would be responsible for divesting or winding down Option One’s remaining origination business, which would be pursued immediately. As a result, certain shutdown costs may be incurred. Cerberus would purchase Option One’s loan servicing platform. The parties are working toward advancing the Dec. 31 contract termination date to provide for an earlier resolution of the Option One situation.
F Mahindra steps up interest in Ford units – Financial Times (7.72 )
Financial Times reports Mahindra & Mahindra is conducting due diligence on Jaguar and Land Rover, put up for sale by Ford (F), but its preference is for the UK utility vehicle-maker rather than the luxury marque, say people close to the situation. As well as the Indian carmaker, other potential bidders include private equity groups TPG Capital, Cerberus Capital Management, Ripplewood Holdings and One Equity Partners. Tata Motors (TTM) is also in the fray, Ratan Tata, head of the Tata Group, said last week. Some industry observers are sceptical about how Jaguar would mesh with an Indian manufacturer known for low-cost vehicles. Others argue a bid for Land Rover would fit well with Mahindra’s legacy and its ambitions to bring a sports utility vehicle to the US and UK. Mahindra declined to comment. However, Ford plans to bundle the sale of Land Rover and Jaguar together, leaving out the option of buying only Land Rover, people close to the situation report. Terms of a deal would very likely prevent the spinning off of Jaguar.
YHOO Yahoo to reorganize management – AP (22.55 )
AP reports Yahoo’s (YHOO) president announced in a staff memo Wednesday its plans to reorganize the co’s leadership. Yahoo’s president Susan Decker announced that Gregory Coleman, global sales executive vice president, will leave in February as his responsibilities are folded into a new division. That division, Global Partner Solutions, will assume responsibility for the company’s relationships with advertisers, publishers, ad networks, and others, according to the memo, which was posted on the Wall Street Journal’s Web site. Yahoo Executive VP Hilary Schneider will lead this new group, Decker said. Decker characterized Coleman’s departure as a mutual agreement.
BOJ says markets overreacted; cash markets tight – Reuters
Reuters reports a Bank of Japan policy maker tried to soothe investors’ nerves on Thursday, saying some market moves had been overdone, amid a new bout of tightness in short-term credit markets due to banks’ growing risk aversion. Bank of Japan policy board member Atsushi Mizuno, the lone advocate of a BOJ rate rise at the last two policy meetings, said a cut in U.S. rates would change the basis of discussion in Japan, although he later said any Fed cut on September 18 would not necessarily rule out a BOJ rate rise the following day. Calming the panic in financial markets was the most immediate task, Mizuno said in a speech to business leaders in central Japan, adding that the U.S. Federal Reserve’s cut in its discount rate earlier this month was an example of such action. “To my eyes, there is market confusion that went beyond rational repricing (of risk),” Mizuno, a former bond strategist, said.
FDC A fight over $24 bln in financing – WSJ (32.73 )
The Wall Street Journal reports banks and their clients at private-equity firms are locking horns over financing, such as the impending sale of First Data (FDC) to KKR which requires $24 bln in financing. Unlike Home Depot (HD), First Data doesn’t have the cloud of housing-market gloom hanging over its future. And KKR has staked out a position as the most intransigent of the private-equity giants when it comes to willingness to give the banks a break. That makes the confrontation between the banks and KKR the most straightforward clash between the two sides as the deal boom that dominated the first half of the year has spun off the tracks. So far, KKR has shown a willingness to give some ground, although not on issues that would fundamentally change the outlook for banks and their shares. But the banks are hoping KKR’s willingness to compromise will grow over time. KKR’s position is that it can’t let banks off the hook without hurting their own investors. “Why would it be right for KKR’s investors for KKR to agree to change the terms of the deal?” says one person familiar with KKR’s thinking. “They are standing by their commitment to a public company on a certain price, which was based on the commitments from Wall Street on financing terms. And they will do nothing that puts their [target] company in harm’s way.” By late yesterday indications were that KKR would make some concessions, though not on the matters that most concern the bankers. Also to be decided is whether the banks will hold the debt on their own balance sheets, as is likely, or try to market the debt to investors. People familiar with the matter said they might settle on a blend of the two. KKR is prepared to negotiate on the small matters, according to those involved in the talks. KKR might, for example, change the time when the debt falls due. Or it might agree to make more debt subordinate. But the banks want KKR to put in strict performance terms and abandon the right to not pay cash interest — conditions that could limit the flexibility of First Data if it encounters financial headwinds.
After Hours Summary: SIGM up 13.1% on earnings/guidance; ESV down -1.6% (announces stock repurchase of an additional $500 mln; lowers Q3 revs guidance
Companies moving in after hours trading in reaction to earnings: Trading Up: SIGM +13.1%; FCEL +9.9%; NOVL +1.8%; UEPS +1.5%… Trading Down: CWTR -13.2%; JAS -5.7% CTRN -5.6%; CHS -4.7%; TIVO -4.2%; PSS -1.5%; HEI -1.0%… Companies moving in reaction to news: Trading Up: BDCO +2.9% (subsidiary enters into new pipeline transportation agreement); MEMY +2.7% (commences Phase 1 clinical program for R4996/MEM 63908; trial initiation triggers $2.0 mln milestone from Roche); FRPT +2.5% (says ahead of MRAP vehicle protection schedule); VVTV +2.2% (CEO buys 110K shares at $7.98-8.1); CEPH +1.2% (announced FDA grants orphan drug designation to TREANDA, an investigational treatment for chronic lymphocytic leukemia)… Trading Down: SWC -3.1% (signs new PGM supply agreements); GGBM -2.6% (received a staff determination letter from the Nasdaq Stock Market); NETL -2.0% (acquires Cypress’s Network search engine assets targeting high-volume desktop Switching); ESV -1.6% (announces additional stock repurchase authorization, of an additional $500 mln; lowers Q3 revs guidance); PH -1.3% (unit faces price-fixing allegations -DJ); GPS -1.1% (announces departure of CFO, Byron Pollitt); MCK -1.1% (Judge certifies class-action case against nation’s largest pharmaceutical distributor in alleged pricing scheme); R -1.1% (to acquire Pollock NationaLease in Canada).
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