Infrastructure debt study upbeat

By Chris Hughes

Published: October 31 2007 22:11 | Last updated: October 31 2007 22:11

The global banking system has $38.5bn of unsyndicated infrastructure debt on its books but should be able to distribute it within the next six months, according to research published on Thursday by the Infrastructure Journal.

The upbeat assessment of the infrastructure financing market comes less than two months after Standard & Poor’s, the credit rating agency, warned that banks would struggle to syndicate an estimated $34bn of what it called “paralysed” infrastructure financing. S&P recently revised its data and now estimates that $28bn remains stuck on bank balance sheets awaiting distribution.

http://www.ft.com/cms/s/7223f5e4-87e8-11dc-9464-0000779fd2a

.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%

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&_i_referer=http%3A%2F%2Fwww.ft.com%2Fmarkets

The global banking system has $38.5bn of unsyndicated infrastructure debt on its books but should be able to distribute it within the next six months, according to research published on Thursday by the Infrastructure Journal.

The upbeat assessment of the infrastructure financing market comes less than two months after Standard & Poor’s, the credit rating agency, warned that banks would struggle to syndicate an estimated $34bn of what it called “paralysed” infrastructure financing. S&P recently revised its data and now estimates that $28bn remains stuck on bank balance sheets awaiting distribution.

“We take a sceptical view of dire reports of the current and future position of infrastructure debt,” said Vander Caceres, analyst at IJ.

The unsyndicated financing supports 40 transactions and compares with the $81.6bn of infrastructure debt that has been syndicated this year, covering some 141 transactions, according to the journal, which compiled the data.

Most of the debt will be offloaded by the end of the first quarter of 2008, IJ said. Deals that have not yet been syndicated, or where syndication is ongoing, include Saur, the French water group bought by a private-equity consortium including Axa and CDC earlier this year, and Budapest airport, bought by BAA nearly two years ago.

“Core infrastructure – traditional project finance – has indeed been affected by the summer of discontent in the credit markets that is continuing today. But as the year draws to a close, the infrastructure financing market remains, if not the perfect picture of health, then certainly an image of resilient well-being,” said Mr Caceres.

He added that most unsyndicated infrastructure debt would be sold via general syndication, although banks were adopting methods that had been more associated with equity and debt capital markets transactions.

These included teeing up sub-underwriters before transactions were announced, and “pre-marketing” deals by sounding out potential investors to gauge the level of likely demand.

Take-and-hold deals, which involve banks buying debt themselves, totalled $24.8bn in the first nine months of the year. A further $9bn of infrastructure financing had been raised via bonds, bringing total infrastructure debt financing to $154bn at the end of September, IJ said.

Copyright The Financial Times Limited 2007

Oil Nears $95 a Barrel, Reaching New High

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By THE ASSOCIATED PRESS

Published: October 31, 2007

Filed at 4:47 p.m. ET

NEW YORK (AP) — Oil futures soared again Wednesday to a new record near $95 a barrel after the government reported another unexpected drop in crude oil inventories and the Federal Reserve cut interest rates by a quarter point.

Interest rate cuts generally support oil prices because they tend to send the dollar downward; the dollar is already at a record low against the euro. Oil futures have been driven to record levels in recent months partly because they offer a hedge against a weak dollar.

However, many stock and bond investors were disappointed by the Fed’s warning that further interest rate cuts weren’t assured because of the risks of inflation — which is being driven in part by higher energy prices. Indeed, oil investors initially seemed unhappy with the Fed’s warning. Crude prices dropped as much as a dollar from earlier highs immediately after the decision was announced, before rebounding due to the greater impact of last week’s surprise decline in inventories, the second straight unanticipated drop.

Light, sweet crude for December delivery rose $4.15 to settle at $94.53 a barrel on the New York Mercantile Exchange after rising as high as $94.74, a new trading record. Crude prices are near inflation-adjusted highs hit in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $101 or more today.

In its weekly inventory report, the Energy Department’s Energy Information Administration said oil supplies fell by 3.9 million barrels last week. Analysts surveyed by Dow Jones Newswires, on average, had expected an increase of 100,000 barrels.

Much of that decline was due to a big drop in crude supplies at a closely-watched oil terminal in the Midwest.

”The market is clearly reacting to the larger than expected 3.9 million barrel drop in crude oil inventories, including a stunning 3.1 million barrel drop at the Cushing, Okla., delivery point for the Nymex (crude) futures,” wrote Tim Evans, an analyst at Citigroup Inc. in New York, in a research note.

Cushing supplies have been under pressure in recent months due to differences in the price between front-month oil contracts and those for delivery in future months. This price difference, or spread, has given storage tank owners a financial incentive to sell their oil, rather than hold it in inventory. Analysts have also blamed falling Cushing supplies, in part, for the rally in which oil prices have jumped 35 percent since August.

”It’s all about Cushing,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill., ”That’s going to just keep … investment capital roaring into this market.”

Other energy futures followed oil’s lead. November gasoline jumped 8.29 cents to settle at $2.34 a gallon on the Nymex. Gasoline prices were also supported by news of a fire Wednesday at a 172,000 barrel-per-day London refinery owned by Swiss-based Petroplus Holdings AG.

November heating oil added 8.32 cents to settle at $2.5078 a gallon. November gas and heating oil futures expired Wednesday afternoon.

December natural gas rose 30.9 cents to settle at $8.33 per 1,000 cubic feet on the Nymex.

In London, December Brent crude rose $3.19 to settle at $90.63 a barrel on the ICE Futures exchange.

The EIA also reported that refinery activity fell by 0.9 percentage point last week to 86.2 percent of capacity. Analysts had expected an increase of 0.5 percentage point.

Supplies of gasoline rose last week by 1.3 million barrels. Analysts expected a 400,000-barrel decrease.

And inventories of distillates, which include heating oil and diesel fuel, rose by 800,000 barrels. Analysts had expected a 1 million barrel decrease.

Crude imports rose last week by an average of 278,000 barrels a day to 9.4 million barrels a day. Gasoline imports jumped last week by 400,000 barrels a day to an average of 1.2 million barrels a day.

Gasoline demand dipped by 18,000 barrels last week last week, but has risen over the last four weeks by about 0.3 percent over the same period last year.

It was the second week in a row the EIA reported a sharp and unexpected drop in oil inventories. Last week’s 5.3-million barrel decline sparked a 10 percent price rally.

John Duff, manager of the EIA’s weekly report, said part of the drop in Cushing inventories likely occurred during the previous week, but that reporting was delayed due to a late or incomplete survey response.

It could take several days for the full impact of this week’s report to be felt, Ritterbusch said.

”As soon as I saw the drop in Cushing stocks, it looked to me like (this) has $95 (a barrel oil) written all over it,” Ritterbusch said.

Fed Lowers Key Interest Rate by a Quarter Point

By EDMUND L. ANDREWS

Published: October 31, 2007

WASHINGTON, Oct. 31 — The Federal Reserve gave investors what they wanted today, lowering short-term rates for the second time in two months.

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The New York Times

 

Fed’s Statement

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 Back Story With The Times’s Edmund L. Andrews (mp3)

But it quietly warned Wall Street not to expected to assume that more reductions are ahead.

The move, to reduce short-term rates by a quarter point to 4.5 percent, was aimed at preventing the meltdown in housing from crippling the rest of the economy. But the vote was not unanimous, reflecting disagreement among policymakers about the risks that confront the economy.

Investors were generally pleased, and stocks were up modestly after briefly giving up most of their gains for the day immediately after the announcement. But Treasury prices fell, reflecting some concerns that lower interest rates could stoke inflation. Oil prices surged nearly 4 percent and gold futures were up about 1 percent. The dollar modestly weakened against other major currencies.

In a statement accompanying its decision, the Fed acknowledged that the housing collapse is likely to slow the economy. But it said “some inflation risks remain” and that the risks of inflation were “roughly balanced” against the risk of slower growth.

That was more sanguine than the view of many investors and analysts on Wall Street, who have been clamoring for easier money from the Fed. But it also reflected the conflicting pressures that face the central bank: despite an unprecedented downward spiral in housing, the rest of the economy has yet to show signs of serious trouble.

Yet just a few hours before the Fed announced its decision, the Commerce Department reported that the nation’s gross domestic product expanded at a healthy pace of 3.9 percent in the quarter that ended Sept. 30.

Consumer spending, which accounts for more than two-thirds of America’s economic activity, climbed 3 percent. Job creation has slowed in recent months, but employers are still hiring more than firing and wages are rising faster than inflation. The unemployment rate, at 4.7 percent, is low and has barely budged.

The most recent data on home sales, housing prices and construction have all been worse than analysts expected. Defaults have climbed sharply on mortgages to subprime borrowers with weak credit histories, and analysts are predicting anywhere from 500,000 to 2 million foreclosures on subprime loans by the end of next year.

Wall Street firms and major banks have announced billions of dollars in losses on mortgage-backed securities in the last several weeks, and Merrill Lynch’s $8.4 billion write-down was among the factors that led to the ouster of its chief executive, E. Stanley O’Neal, earlier this week.

Fed officials and private economists alike have predicted that the housing market has yet to hit bottom. Housing starts in September were down 31 percent from the year before. Sales of existing homes have dropped 30 percent since their peak in 2005, and the supply of unsold homes last month reached its highest level in more than 19 years.

The nationwide average price of homes have declined almost 5 percent in the last year, the first time on record that has happened in the United States. On Tuesday, Standard & Poor’s reported that its Case-Schiller index of housing prices in 20 major cities had declined 4.4 percent in August, compared with a year earlier. That was the eighth consecutive monthly decline, and the steepest since April 1991.

“If the Fed is in the business of managing risks, as it claims to be, the argument in favor of easing is, in our view, overwhelming,” wrote Ian Shepherdson, an economist at High Frequency Economics, in a research note on Tuesday.

But at least some Fed officials have worried about reacting too strongly. The president of the San Francisco Fed, Janet Yellen, cautioned in a speech last month that the Fed cut rates dramatically after the Russian financial collapse in August 1998. Then, as now, credit markets began to freeze up as investors worried about defaults. But the fear abated and the economic boom did not slow that year.

At the Fed’s policy meeting on Sept. 18, 5 of the 12 regional banks did not request a reduction in the discount rate, the rate at which banks can borrow directly from the Fed. That was a quiet sign that some Fed presidents did not yet see the need for lower rates at that time.

Lyle E. Gramley, a former Fed governor and now a senior adviser to the Stamford Washington Research Group, said some policy makers were worried that rising wages and slower productivity growth could aggravate inflation.

“Unless productivity improves or the rise in compensation slows down, unit-labor costs will be rising too rapidly to keep core inflation down to 2 percent,” Mr. Gramley said. “That’s what’s got them worried.”

But Fed officials were under heavy pressure from financial markets. Prices of Fed-funds futures, which provide a way of betting on the Federal funds rate, showed that investors placed the odds of a rate cut on Wednesday at 96 percent.

Had the central bank decided to leave interest rates unchanged, without any advance warnings from policy makers, the stock markets would likely have plunged in panic.

Instead, policy makers were expected to give investors the rate cut they expected but also to warn against assuming additional rate cuts later this year.

The board also approved a 25-basis-point decrease in the discount rate to 5 percent.

http://www.nytimes.com/2007/10/31/business/31cnd-fed.html?hp

EU mergers and takeovers (Oct 31)=2

Wed Oct 31, 2007 11:12am EDT

 

Market News

Oil hits record $94 on U.S. inventory slump

Stocks gain before rate decision   |  Video

Dollar falls to record low as U.S. rate cut expected

More Business & Investing News…

NOV. 22

— ArcelorMittal (ISPA.AS: Quote, Profile, Research)(MTP.PA: Quote, Profile, Research) of Luxembourg, a steel company, purchases Saar Ferngas of Germany, a natural gas supplier (notified Oct. 16/deadline. Nov 22)

NOV. 23

— Benteler of Germany, an auto parts maker, and SGL Carbon (SGCG.DE: Quote, Profile, Research) of Germany, a maker of materials and brake discs, open a joint venture to produce carbon fibre plastics for the auto industry (notified Oct. 17/deadline Nov. 23)

NOV. 26

— Goldman Sachs (GS.N: Quote, Profile, Research), an investment bank, buys LOMO Group of Germany, a gasoline station operator (notified Oct. 19/deadline Nov. 26/simplified)

October 31, 2007, 10:16 am

Wasserstein Shows M&A Latecomers How It’s Done

Posted by Dana Cimilluca

Nobody seemed to believe Bruce Wasserstein when he said Wait and see. Now they do.

When Lazard was reporting lackluster financial results in the first and second quarters, its executives said the firm’s results would be weighted toward the second half, when some big advisory assignments, like TXU, were scheduled to pay off. Investors responded by pushing its shares down more than 20% through July, even though there was little reason to fear the credit storm then swirling would affect the investment bank, with its limited exposure to leveraged buyouts.

Today, Wasserstein (above), a pioneer in the M&A business in the 1980s, effectively told the naysayers, “I told you so.” Lazard reported a 93% rise in revenue from takeover advice (to $295.4 million) in the third quarter. Profit more than doubled, topping analysts’ estimates. For some perspective, compare that to the more-modest gains in financial-advisory revenue in the period of 29% at Citigroup and 36% at J.P. Morgan, behemoths that have made big pushes to become top tier investment banks. (Lazard still has nothing on Goldman, which doubled its advisory revenue to $1.4 billion in the quarter.)

Investors now believe. They are pushing up Lazard shares, to as high as $52.72, on the news. They are now up 5% at $51.77. Lazard shares have outperformed both of its closest peers, Greenhill and Evercore Partners, in 2007.

The results gave a hint that the future may continue to be bright: Lazard took in $56.2 million from financial restructuring, or advising companies teetering on the brink of collapse. That is more than triple the year-earlier figure. With the credit markets still encountering rough seas, that business could provide Lazard’s next future payoff.

Ex-Chief of S.E.C. Says Pension Funds in Danger

By MARY WILLIAMS WALSH

Published: October 31, 2007

As New York State comptroller, his father “saved the retirements” of countless workers, Arthur Levitt Jr. said in a speech yesterday — but he added that now those pensions, along with those of millions of other Americans, are again at risk.

Jay Mallin/Bloomberg News

Arthur Levitt Jr. is an adviser to the Carlyle Group.

In remarks to pension officials from New York and several other states, Mr. Levitt, the longest-serving chairman of the Securities and Exchange Commission, said their world was fraught with problems, including conflicts of interest, opaque accounting and a tendency among elected officials to promise valuable benefits, then fail to set aside enough money to pay for them.

“As the baby boomers begin to retire, we cannot tolerate a shaky pension system,” said Mr. Levitt, who stepped down from the S.E.C. in 2001 and is now a senior adviser to the Carlyle Group, a large private equities firm.

The Carlyle Group is one of the investment firms to be questioned by investigators in an inquiry into the New York State pension fund. Mr. Levitt alluded to that inquiry, which has focused on whether associates of New York State’s most recent former comptroller, Alan G. Hevesi, improperly benefited from his sole direction of the $156 billion fund, the nation’s second largest.

But Mr. Levitt said New York’s pension woes were just the latest in a series of scandals at public funds all over the country, including those in the cities of Chicago, San Diego and Philadelphia and the states of Illinois, Ohio and California.

Mr. Levitt was speaking at an annual conference for public pension trustees sponsored by the Pacific Corporate Group, an investment management company that specializes in private equities.

He said he was speaking in the dual capacity of a private equities executive and the son of Arthur Levitt Sr., who was widely admired for refusing to use the New York State pension fund to bail out New York City during its fiscal crisis in the 1970s. Today, “too many fund trustees as well as elected officials” are “unable to carry this load,” he said.

Mr. Levitt said much of the trouble was rooted in pension accounting rules that “fail to reflect accurately” the cost of the benefits that public workers have earned or the value of the assets set aside to pay those benefits.

“We can’t begin to improve the fiscal standing of public pension funds until we can accurately assess their financial health,” he said.

He blamed a rule-making framework that allows softer accounting standards for governments than for corporations, and called for the repeal of the Tower Amendment, a 30-year-old law that limits the S.E.C.’s authority to police governmental accounting. The current S.E.C. chairman, Christopher Cox, has also expressed doubts about the Tower Amendment’s continuing usefulness but has not called outright for its repeal.

Mr. Levitt also called on Congress to create an independent financing source for the body that writes the accounting rules for governments — something Congress has already established for the corporate accounting rule-makers.

Currently, the Governmental Accounting Standards Board must finance its operations by soliciting contributions from the same bodies of government that adopt its rules.

Mr. Levitt also questioned the way the governmental accounting rule-makers are chosen, saying he thought the trustees of the board should be named by the S.E.C. Currently, various constituency groups recommend trustees.

Even if the pension accounting rules are beefed up, he said, it would make little difference unless the oversight boards of the funds were also improved. Currently, less than half of all public pension funds are thought to have formal education requirements for their trustees.

Current practices also allow pension officials to give priority to political concerns, he said, like calling for the divestment of pension money from “rogue states” like Sudan and Iran. He expressed great concern over the practice of some pension officials of soliciting campaign contributions from Wall Street firms.

“We have created a situation where workers’ retirement savings are being used for private gain,” he said.

While at the S.E.C., Mr. Levitt said he had directed staff members to investigate these practices, after which they drafted a rule barring money managers from working for public pension funds if the money managers had recently made political contributions to any fund officials.

But the rule, conceived of in 1999, when the S.E.C. was fighting uphill to curb conflicts of interest in the auditing profession, never made it past the drafting stage. Eight years later, Mr. Levitt said he thought the problems were worse than ever.

Questions from the audience suggested that at least some trustees at the conference disagreed with Mr. Levitt’s contention that pension trustees had no business identifying rogue states and trying to steer money away from them. One asked whether he also wanted them to back off from efforts to improve corporate governance. He said he did not.

Joseph Haslit, who represents New York City’s comptroller, William C. Thompson Jr., on the boards of four of the city’s big pension funds, said he thought nearly everybody in the room agreed with Mr. Levitt on the need to crack down on unethical behavior. But he said he doubted they agreed with his contention that pension boards needed to be beefed up.

http://www.nytimes.com/2007/10/31/business/31sec.html?ref=business

October 29, 2007, 6:16 pm

Cravath First! Let BigLaw’s Associate Bonus Season Begin

Posted by Peter Lattman

It’s not yet November, and Cravath announced its year-end associate bonuses today. Here they are, as first reported by Above the Law:

Class of 2007: Year-end bonus 35K, no special bonus
Class of 2006: Year end 35K, special 10K
Class of 2005: Year end 40K, special 15K
Class of 2004: Year end 45K, special 20K
Class of 2003: Year end 50K, special 30K
Class of 2002: Year end 55K, special 40K
Class of 2001: Year end 60K, special 50K
Class of 2000: same as 2001

The Law Blog spoke with Cravath’s presiding partner Evan Chesler. Why so early? “We decided to announce and pay the bonus early enough so people could use and factor it into their year-end plans,” said Chesler. “Normally people like to get the bonuses early and this year as a way of showing our gratitude, our lawyers actually get the money in time to use it.”

The “special bonus,” doled out in years when the firm had particularly good finanical performance, will be payed out on on Nov. 9. “We wanted to pay an extra bonus as a way to thank our lawyers for their hard work that contributed so fundamentally to the firm’s performance.” Evey associate gets the special bonus except in rare, exceptional cases — and Chesler stressed there might not be any cases in a given year. (The regular bonus will be paid out in the middle of December.)

Click here to see what Cravath paid last year. These bonuses are on top of associate salaries beginning at $160,000 for first-years, $170,000 for second-years, $185,000 for third-years, $210,000 for fourth-years and so on and so forth.

So it looks like Cravath is first out of the associate-bonus gate. In prior years, these announcements set off a chain reaction, with other firms quickly following suit. What should we make of the firms’ lemming-esque approach to associate bonuses?

 

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