Erin Griffith

As usual, we have a week's worth of ratings actions on the debt of LBO-backed companies from ratings agencies Standard & Poor's Ratings Services and Moody's Investor Services. As has been the trend toward the end of summer, the number of downgrades has significantly fallen off. I noted yesterday that even the number of private equity-backed companies on S&P's "Weakest Links" list seems to have dwindled. The list represents companies which are most likely to default, and part of the reason it's shrunk may be because many of the companies have already defaulted. Company: Builders FirstSource, Inc. Sponsor: JLL Partners Inc. and Warburg Pincus LLC Action: Moody's lowered the company's probability of default rating of to Caa3 from Caa1. Highlight: The downgrade reflects the company's recent announcement that affiliates of JLL Partners and Warburg Pincus, which own approximately 50% of BLDR's outstanding shares, offered to recapitalize the company. Moody's view the situation, as proposed, to be a distressed exchange and the Caa3 PDR anticipates these events.

Yesterday Harvest Partners, a buyout firm based in New York, announced a deal to invest $80 million in listed natural gas services provider Regency Energy Partners LP. The PIPE deal is just another in a line of private investments in public equities-since the credit crunch, private equity firms have been increasingly attracted to the investment style. And in some cases they may be rewarded handsomely for basically playing the stock market. Leonard Green Partners, for example, could earn roughly twice its investment in Whole Foods Market in a matter of a year or so. Last November, the firm purchased preferred stock which pays an 8% dividend and is convertible into common stock worth 17% of the company. At the time, the stock traded around $10 per share. Today Whole Foods stock closed at $27.40 per share. Others have been less lucky. Sun Capital Partners' public equities fund, Sun Capital Securities, has struggled after losing all of its investment in Sharper Image when the company went bankrupt in 2008. And of course there's TPG's famous WaMu misstep.

KKR Turns Vulture Investor: LBO Kings are turning to bankruptcy courts to make acquisitions. (Bloomberg) Flunkin' Donuts: "Dunkin' runs on lawsuits." The pastry chain owned by Bain Capital, Carlyle Group and THL Partners is treating its franchise owners badly, the New York Post reports. IPO TIME! Everyone celebrate. But wait. There is such a thing as IPOs increasing to a level that is too high, reports the Wall Street Journal. (WSJ sub. req.) Nice Guys Finish First: Finally, a whistleblower has been rewarded with a commensurate reward for his risk. Dealzone writes that it feels good to applaud the $51.5 million windfall John Kopchinski is getting for his six-year legal battle with Pfizer, the world's biggest pharmaceutical company, which resulted in a record $2.3 billion penalty for drug pushing transgressions. (Dealzone) Hiring? Why not trialing? Private Equiteer asks, if you wouldn't marry someone you only met for a few hours, why would you agree to hire someone before a trial? (Private Equiteer)

A Standard & Poor’s report from yesterday declares that speculative-grade debt, a cornerstone of leveraged buyouts, has reached a double digit default rate for the first time this downturn. Is it a peak? Maybe. The number of buyout-backed companies in S&P’s “Weakest Links” list, which tracks default candidates, has fallen off in recent quarters, in […]

Don't you just love a good "Background of the Offer" story? It's just like Days of Our Lives, only written by M&A lawyers. Exciting stuff. This week we got a peek at the action leading up to Advent International's agreement to purchase mall clothing retailer Charlotte Russe. We knew there would be some juicy details since buyout firm KarpReilly LLC had made a play for the company that went awry. This episode of Days of Our Private Equity Lives shows that once again, financing trumps price. Advent International won the auction with a lower bid because, according to the filing, "the greater certainty of closing under the Advent proposal outweighed the $0.25 per share difference in price between the two proposals." We saw the same phenomena earlier this year when Anheuser Busch sold KKR its Korean beer company, Oriental Brewery. Sources told peHUB that KKR's final bid was lower than two rival bids from local firms Affinity Equity Partners and MBK Partners, but KKR won the auction because its debt financing was guaranteed.

Salt In The Wound: New York State's $116 billion pension fund lost money on five of 12 of the private equity investments cited in federal and state corruption probes, the state comptroller said on Wednesday. (peHUB) Fresh Capital: China Life Insurance is considering a move into private equity investments. (Alt Assets) Hey Buyout Shops: You're at a turning point. What do you do? (Newsweek) Wow: This bank is running running a cash-for-cheese loan scheme with some Parmigianino Reggiano worth $200 million. (BBC) What's the New Normal? Can we identify any fundamental shifts in the model, changes that will last for 3-5 years, not 3-5 months? (Carried Interest)

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, […]

Today Simpson Thatcher, the law firm representing Blackstone Group, Carlyle Group and Centerbridge Partners, issued a statement on the firms' reactions to last week's FDIC restrictions. Read it below. FDIC Adopts Final Statement of Policy on Private Investor Purchases of Failed Banks By Lee Meyerson, Gary Rice, Maripat Alpuche, Ellen Reilly Patterson, Simpson Thacher & Bartlett LLP

Here are some potential target ideas, rumored or official, to jumpstart your deal pipeline. Our sources are various news reports and the Buyouts "Seeking Buyers" list. For prior lists, see below, and send any additions my way. The owners of the New York Mets will be forced to sell the pro baseball team due to huge losses suffered in the Bernard Madoff swindle, the author of a book about the disgraced money manager said on Friday. (Read more) Management Energy, Inc. an OTC-traded exploration stage coal company based in California, announced the appointment of Brian McNiell to serve as a member of the Board of Advisors. Mr. McNiell will begin a study of Management Energy's reserve base to pursue strategic alternatives. Amer Sports, a Helsinki, Finland sporting goods company, is considering divesting Mavic, a bicycle brand.

Regrettable Statements: Robert Benmosche, the CEO of AIG, said he regrets comments he made to New York Attorney General Andrew Cuomo in which he said Cuomo "doesn't deserve to be in government" and had acted like a "criminal." (Dealzone) Down With Private Equity, It Seems: The Reuters blogging team is on a rampage against private equity of the leveraged variety this week. Matthew Goldstein is against-leverage and writes that we should require a 50% equity contribution on all buyouts all because Clear Channel was a stupid deal. (Matthew Goldstein) Road to TV Glory: A New York Cab driver has penned a TV pilot about M&A. (NY Post) Meltdown Anniversary Watch: The Lehman anniversary is coming up on Sept. 15. Joe Nocera's idea-"Don't look over there for an understanding of the meltdown, look over here"-may survive as the most rational. (Big Money)