Instead, the government should apply the same principles it is applying to Citigroup to create a win-win situation for AIG and its stakeholders. First, the government must provide a federal guarantee to meet AIG’s counterparty guarantee requirements, which have consumed the vast majority of government-provided funds to date. Website design By BotEap.com******************** Website design By BotEap.comThe purpose of any federal assistance must be to preserve jobs and allow private capital to take the place of government once private capital becomes available. The structure of the current agreement between AIG and the government makes this impossible. Website design By BotEap.comThe government’s role should not be to force a business out of business, but to help it stay in business so it can continue to be a taxpayer and employer. This requires reviewing the terms of the federal government’s assistance to AIG to avoid the breakdown of that company and the devastating consequences that would follow.
Hank, you have got to be kidding. American taxpayers saved Citigroup’s life, and therefore we can obtain up to 8% of the company. THAT is called a “punitive program” in Hank’s parlance. for the American taxpayer. In my world, when you save a company, you own ALL of the equity, not 1/12 of the equity. The fact that the taxpayer gets up to 80% of AIG, now that starts to make sense. I agree with Big Mo’s assertion that “the purpose of any federal assistance should be to preserve jobs and allow private capital to take the place of government once private capital becomes available.” But that has nothing to do with post-restructuring equity ownership. He then strikes a chord by saying, “Continuing the status quo will result in the loss of tens of thousands of jobs, ensure billions of dollars in losses for the pension funds that are major shareholders of AIG, and end the retirement savings. and millions of other ordinary Americans.” Well, Hank, that’s 100% yours. YOU should have thought things through before you built a company and culture that gambled it all and lost. Tell that retiree, that pensioner how the you fucked up. That’s called integrity. This thinly veiled call for a personal bailout is both insulting and offensive. And I’m not buying it. I’m sure my fellow American taxpayers aren’t either. Website design By BotEap.comPrivate capital: The daisy chain of secondary sales of PE LP interests will almost certainly accelerate. It’s one of those slow-motion train wrecks that’s painful to watch. The calculation is easy to understand: public stock values plummet, PE values are stickier and fall more slowly, PE as a percentage of total assets rises to unacceptable levels, precipitating a selloff of PE LP shares . An interesting feature of this dynamic is autocorrelation, where PE values are slow to adjust despite public market comparables being available. If industrials are down 40%, don’t you think a portfolio of PE holdings in industrials should be traded? well beyond 40% discount due to lack of liquidity? However, this is not the way many PE funds choose to view the world. Regardless, the secondary market is just that, a market, and the discounts that are placed on marquee funds like KKR and Terra Firma reflect this reality. Pensions and endowments have to get rid of things, and they’re trying to do it at a fraction of their base. But even at clearance prices it’s hard to move merchandise. In the coming months we will see how desperate these investors are. Could we see KKR trade at 30 cents on the dollar? It’s possible. And terrifying. Website design By BotEap.comRisk capital: I attended an interesting brownbag today with my friends at betaworks. Much of the discussion focused on financing in today’s hostile environment. These are some of the data that emerged from the dialogue:
- Website design By BotEap.comBe prepared to live with your current investment syndicate.
- Website design By BotEap.comIf possible, have a wealthy investor as part of your syndicate.
- Website design By BotEap.comRaise 18-24 months of capital, no less. This can be done through a combination of raised capital plus a reduction in operating consumption.
- Website design By BotEap.comThe restructurings are getting ugly. Investors, whether internal or external, are demanding cuts from the latest round plus and priority repayment of principal so that they are paid in full before anyone else gets anything. It looks, smells and feels like a jam. That’s why it’s so important to have 24 months of capital in the bank up front.
- Website design By BotEap.comIn these times of recession, coalitions are formed between the Management and the New investors vs. former investors. This misalignment of interests can lead to stagnation and bring a company to the brink of the abyss.