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From:
"Dan Primack"
Name:
Dan Primack
Email Address:
Dan_Primack@fortune.chtah.com
Subject:
Date:
01-11-2010 14:14:31
Message
Fortune Finance Street Sweep Term Sheet Economics Tech Wall Street Washington
Random Ramblings
Halloween sprawled over three days this year, giving Saw 3-D a big weekend and pushing the
nation ever-closer tooth decay and obesity. I made the last-minute discovery that an Amelia
Earhart costume is right there in my closet. Three words: pleather baggy pants. Hey, it's
supposed to be a scary holiday.
Scarier still is the cold-light-of-morning realization that midterm elections are upon us. Pundits
from all ends of the political spectrum agree that Wednesday will mark the beginning of two
years of gridlock and pre-mature campaigning for 2012's election bloodbath, which will likely be
another round of Tea Partyers v. Republicans, Republicans v. Obama, and everyone trying to
fight rising unemployment numbers. Unsurprisingly, the 2010 election conversation leapfrogged
the actual election results and is now focused on What Obama Must Do to Get His Act Together;
and Can Sarah Palin and the Tea Party Express Be Stopped. Obviously, these are not mutually
exclusive conversations
But back to this cycle. Assuming that Republican take the House and Democrats hold the Senate
by a slim margin, it's going to be the kind of Congress that Wall Street likes: one that gets very
little done. As one investment banker mentioned to me a few weeks ago, once Capitol Hill is at
war with itself, all Wall Street must do is deal with Dodd Frank, a fairly Street-friendly piece of
legislation. Private equity has very little skin in the game, given that it has won the carried
interest battle; and that was an astounding accomplishment given everyone thought of the issue
as low-hanging fruit for lawmakers heading into the first half of Obamas term.**
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Bob Profusek, the outspoken head of Jones Days M&A practice, thinks that Dodd Frank could
positively boost the private equity industry. While the Volcker principles are not explicit in
financial regulation, the underlying sentiment will push banks to divest their alternative asset
management bits and pieces, Profusek says. "The big M&A story in 2011 is going to be the
disaggregation of the financial services industry, he says. Well see a lot of sales, spin offs,
split offs, and so forth."
**As a footnote to the carried interest win, directors inside buyout firms note that this had
more to do with Congressional fumbling than with any real skill on the part of the private equity
lobbying group, the Private Equity Growth Capital Council.
*** An update. Are bondholders in the nearly $1 billion Kleen Energy plant looking at the
possibility of a downgrade?
In September I wrote about the Kleen Energy power plant up in Middletown, CT. The short
version of the story is that the project was created by an unlikely crew of locals (a garbage
hauler, an ex-city councilman, and a state construction firm that specializes in roads and
buildings). It was flailing until it found a way to ink a contract with the state utility firm
Connecticut Light & Power that was so attractive that it lured in financial support from the now
approximately $3 billion private equity firm Energy Investors Fund. Together the Kleen
partnership raised $985 million in loans and credit facilities.
Unfortunately, the local contractor/part owner O&G Industries decided to hire itself to build the
project, rather than a big experienced power plant construction firm like Bechtel or Shaw. There
was a deadly accident that killed 6 people and delayed the project by months.
Now O&G and Kleen will pay CL&P damages for the delay. The plants original completion date
of November 30, 2010 has been pushed back to April 8, 2011. Per its contract with CL&P, Kleen
has to pay $93,000 a day, or $8.4 million, for the first 90 days of delay. After that, damages are
based on the replacement cost of lost power capacity.
Local press says that the agreement prevents Kleen from facing inquiry by state utility
regulators that could force the partnership to disclose information about the plants financing
and O&G safety practices.
A couple of things to watch for: the original bond rating report by Fitch does take construction
delays into account as a credit risk. The report uses a 3-month delay as its base scenario (and
this will be at least a 4-month delay). In this scenario, the net effect is operating cash flow
would be insufficient to meet scheduled debt service payable through the first quarter of 2011,
for a total deficit of approximately $20 million. Of course, the report is quick to point out that
there are sources of funding to make up for this shortfall, including revolving credit facilities, an
unearned early completion bonus, and the liquidated damages that the general contractor O&G
must pay to the partnership. Even so, drawing on lines of credit and impairing O&G (which is on
many sides of the deal) could result in a re-rating of the bonds.
Thanks for helping me while Dan awaits his baby. As always, you can contact me at
katie_benner@fortune.com.
Pre-Marketing, including the Fed's credibility on the line, Bank of America's mortgage mess,
election watch, and man who took away Halloween.
Nina Easton: Republicans beware, drawing blood usually leaves you bloody
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Bethany McLean and Joe Nocera: How the roof fell in on Countrywide: an excerpt
from All the Devils are Here
Vote: Before there was Nov. 2, there was Fortune's Business Person of the Year Showdown
VC Deals
Carbonflow, a San Francisco, CA-based software-as-a-service (SaaS) provider, has closed
Series B funding totaling $4.2 million. The round was led by OVP Venture Partners and included
@Ventures and Clean Pacific Ventures. Proceeds will be used to expand the companys global
sales presence and accelerate the release of new software products and
services.www.carbonflow.com
SnapLogic, a San Mateo, CA-based Online data integration company, has raised $10 million in
funding from an undisclosed party, according to a filing with the Securities and Exchange
Commission. The company has raised nearly $5 million in funding from investors including
Andreessen Horowitz. www.snaplogic.com
Virtual Incision, a Lincoln, NE-based maker of robots used in laparoscopic surgery, has raised
$2 million in Series A financing led by PrairieGold Venture Partners and Bluestem Capital.
Proceeds will be used to develop advanced prototypes of the company's robotic surgical
platform. The initial application of the Company's technology will be for colon operations.
www.virtualincision.com
Nomadesk, a Belgian cloud computing company, raised $7 million in Series B financing led by
BAMS Angel Fund. Existing shareholder Gimv also contributed to this latest round, which brings
the company's total funding to about $12 million. www.nomadesk.com
Acquia, a Boston-based open-source content management start-up, raised $8.5 million in a
third round of funding from existing investors North Bridge Venture Partners and Sigma
Partners. acquia.com
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Venyu Solutions, a Baton Rouge, LA-based data security company raised an undisclosed
amount from Madison Parker Capital and Gladstone Investment Corp. Brent Brown, Managing
Partner of Madison Parker Capital, will join the Venyu Board of Directors. www.venyu.com
Vascular Pathways, a Los Altos, CA-based medical device company, raised $14 million in
Series B venture capital. The lead investor in the round CHL Medical Partners was joined by
Ascension Health Ventures (AHV), MVM Life Science Partners and Arcus Ventures.
PE-backed IPOs
AZ Electronic Materials, the Luxembourg-based chemicals maker, jumped following its 383 million
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pounds ($609 million) IPO. AZ is partly owned by The Carlyle Group and by Vestar Capital Partners.
AZ said it will get 251 million pounds of the IPO, and that the private equity firms and other other
owners will get the rest. Both Carlyle and Vestar will keep about a 21% stake in the company. Carlyle
bought AZ from Clariant AG in 2004 in a deal worth about $524 million. eng.az-em.com
Exits
Wendel, a European private equity firm, will sell its 46% stake in Stallergenes, a French drugmaker
that specializes in allergy medication, to Ares Life Sciences, in a deal worth about $489 million. Ares
is an investment firm that specializes in health care industry deals, and it is expected to make an
offer for the rest of Stallergenes after it buys Wendels stake. www.stallergenes.com
Other Deals
drop.io, a Brooklyn, NY-based content sharing site, has sold most of its technology and assets to
Facebook. Terms of the deal were not disclosed, but the company said on its website that founder
Sam Lessin will be moving to Facebook. drop.io lets users create a space where they can share
photos, audio and video files, and documents. The company will be winding down its services
through December 15. drop.io/future.htm
Metro-Goldwyn-Mayer bondholders finally approved a restructuring plan that would allow the movie
studio to file for bankruptcy and wipe out about $4 billion in debt. The studio would be run by Spyglass
Entertainment co-founders Gary Barber and Roger Birnbaum. The vote comes after Carl Icahn tried to
keep MGM from proceeding with a prepackaged bankruptcy. Icahn agitated for a merger between MGM
and rival Lion's Gate Entertainment, of which he is the largest shareholder.
AOL, the New York, NY-based web services company, will sell a portion of its Dulles campus to CB
Richard Ellis Realty Trust for $144.5 million. The deal includes 700,000 square feet of office space
and approximately 22 acres of land. http://corp.aol.com
Fortinet, the Sunnyvale, CA-based network-security systems company, has received a takeover bid
from International Business Machines, according to Bloomberg. Fortinet is working with Morgan
Stanley on strategic options, according to the report, which adds that discussions may be at an
advanced stage. www.fortinet.com
HomeAway, an Austin, TX-based vacation rental company saw its existing shareholders stock to
Google Ventures. Google's investment isn't going to HomeAway, since it bought the shares from third
parties, but it does show that fast-growing company is still hot. It has received about half a billion
dollars in venture capital so far; and TechCrunch estimates revenue to be in the $200 million range
and profit in the neighborhood of $70 million. www.homeaway.com
Canesta, a Sunnyvale, CA-based chip maker, will be acquired by Microsoft. Terms of the deal were
not disclosed. Canesta's 3-D sensing technology is used in computers, video game consoles, and
mobile phones. www.canesta.com
Porex Surgical, the Newnan, GA-based medical products division of Porex Corp, will be acquired by
Stryker Corp, a medical device maker. The terms of the deal were not disclosed. Porex's products are
used in reconstructive head and face surgery. Stryker recently announced a $1.5 billion deal to
acquire the neurovascular business of Boston Scientific Corp. (NYSE:BSX) www.porexsurgical.com
EXCO Resources received a management-led buyout offer from its chief executive, valuing the oil
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