Erin Griffith

In April, small-market lender Patriot Capital Funding announced it was considering strategic alternatives. What the struggling BDC (business development corp.) didn't say was that the company had already shopped itself widely and was kicking off a full auction. Last week, Patriot took first-round bids from eight parties, according to two lending sources who asked not to be named. One source said the bidding pool included two or three fellow BDCs and one private equity firm, adding that bids ranged from $2 per share to "full valuations" of $3 per share. As of 2pm this afternoon, Patriot Capital was trading at $1.91 per share, or a $40 million market cap. A year ago, the BDC's shares traded at more than $9 per share, but in recent months, Patriot Capital has met difficulty. In April one of the company's credit facilities was terminated because the value of assets provided as collateral had dropped.

As usual, we have a week’s worth of ratings actions on the debt of private equity-backed companies from Standard & Poor’s and Moody’s Investor Services. This week was a good one for debtholders, as a number of companies saw their debt ratings upgraded. But on second thought, it wasn’t that great, since most of these upgrades are post-distressed-debt exchange. After an ‘SD’ (selective default) rating, there’s nowhere to go but up, and in a distressed debt exchange, someone has to take the short end of the stick, and it’s usually not the equity holder. Certainly not an ideal situation, but as I said last week, we’re only at the tip of the distressed debt exchange iceberg (despite oddly successful issuances from the likes of previously unpopular companies like Harrah’s). Get ready for a very cold few years… Company: Brigham Exploration Co. Sponsor: DLJ Merchant Banking Partners Update: S&P affirmed its 'CCC+' corporate credit rating on the oil and gas exploration and production company. It’s been removed from the Weakest Links list because the outlook is developing. Highlights: “The affirmation follows the company's announcement that it has received net proceeds of roughly $94 million from an equity issuance. Although the pro forma liquidity profile is much improved, we are concerned that liquidity could become tight in the fourth quarter of 2009 or first half of 2010 due to low natural gas prices and an increased capital budget.”

In a world of uncertainty, Cartesian Capital Group is betting on one thing it knows hasn't changed: natural disasters. This week the firm launched operations for its new catastrophe reinsurance business, called Iris Reinsurance. The business will be led by Chase Toogood, formerly with Credit Suisse and ACE Capital Re, and Schuyler Havens, formerly of Freestone Capital Management. Cartesian Capital, which typically makes investments of between $40 million and $125 million, contributed to Iris Re with capital from its first fund, alongside contributions from outside investors. Cartesian Capital's private equity operations continue to invest from its first fund, Pangaea One LP, a $1.05 billion pool closed in 2007 that is 55% deployed. Cartesian may be the first buyout firm to fulfill a year-end prediction from Reuters that private equity firms would flock to the reinsurance business for private equity-like returns of around 20%. I spoke with Cartesian Capital's Managing Partner and co-founder, Peter Yu (who also founded AIG's private equity business) about why he expects to outperform that estimate, what private equity has in common with reinsurance, and the industry's true market dislocation.

Bummer: How does the busted Rio-Chinalco deal hurt Blackstone Group? As advisors to the deal, they drop nine spots on global M&A ranking without it. (Deal Journal) Made Up His Mind: Roberto Cavalli finally decided to sell a stake to a buyout firm. (WSJ) This is a Problem: Dennis Berman does the math on the U.S. taxpayers' investment in GM and concludes that, short of a magic trick, we won't be getting that money back. Pretty much ever. (WSJ) Reviews: Here's an in-depth review of Pete Peterson's new memoir. (Reuters) MBA Report: "In year of unprecedented market downturn, seniors flee finance and consulting for education and health." (Harvard Crimson)

With no formal track record or pool of capital, former Cypress Group Managing Director Jon Foster set out to start a new private equity firm during a terrible time to do such a thing. Alongside a team of operating experts (Steve Cortinovis, former president of Europe for Emerson Electric, John McGovern, former CFO of Georgia-Pacific and Steven Martin, former EVP at Ingersoll-Rand), Foster founded Current Capital. The firm is presently an operations-focused fundless sponsor building its track record with the hope of evolving into a full-on buyout firm that also will offer a suite of advisory and consulting services. According to Foster, Current Capital won’t come to market with a proper buyout fund until said market turns around. At that point it’ll seek around $200 million in commitments, he said. For the time being, Current Capital is building its track record through individual, creative deals that still fit into its lower middle market services and industrials focus. The firm’s first deal, not previously disclosed, occurred back in November, when it partnered with GSO Capital to “manage the firm’s investment” in portfolio company Tompkins Associates.

The Tale Of Two Buyouts: Further evidence of "how private equity groups are struggling to keep control of companies bought during the credit bubble and providing clues on whether they will succeed." (FT) Buyout Books: Towerbrook Capital doubled its money on its investment in celebrity show company Jimmy Choo. Now there's a book that details how the small couture business rose to become an "international sensation." (WSJ) Backing into it: WSJ breaks down just how big of a deal Delphi is for Platinum Equity: Platinum recently closed on a $2.75 billion private-equity fund. Typically a buyout fund will invest no more than 15% of a fund into a single deal, so not to concentrate its risk. Using that benchmark, Platinum's maximum capital commitment would be about $413 million. (WSJ) Won't Refi Again: Debt refinancings on buyout-owned companies are hitting a brick wall. (DJ) Bankers in Low Wage Jobs? How mortifying. "Carlos Araya used to order lobster, filet mignon and $200 bottles of red wine at the Palm Restaurant in midtown Manhattan. Now, he seats customers at its Tribeca branch." (WSJ)

As the weather (slowly) warms up, plenty of M&A bankers are hoping the market for deals will as well. We've noticed a few more targets coming to market in recent weeks and have compiled a list of some of those we've come across. Our sources are various news reports and the Buyouts "Seeking Buyers" list. The following companies (among many, many others) are either formally considering "strategic alternatives," reported to be on the block, or rumored to be in sale talks in the past week. I can't be comprehensive, but I can try. For prior lists, go here, or here, and send any additions my way. Digital Ally- The Deal reports the company hired Banc of America Securities to help is explore strategic alternatives before Michael Caulfield, BofA's managing director on the account, joined the company as its VP of Strategic Development. AIG has lowered its asking price on its Taiwan insurance unit to between $1.8 billion and $2 billion, from between $2 billion and $2.5 billion, according to local reports.

I'm certain that, in general, I'm not alone in my ratings agency rage, but mine is a very insular, specific rage. Standard & Poor's recently released a report titled "Global Credit Comment: Exposure to Deteriorating Assets Increases Risks To Private Equity." It's not unlike prior reports the firm has released titled "Private Equity Swirling In The Eye Of The Storm" and "Default Autopsy Finds Traces of Private Equity DNA," both of which I've been equally critical of. This report states that more half of the 293 companies on its Weakest Links list "have been involved in transactions with private equity at one point or another." The Weakest Links list consists of entities rated ‘B-‘ and lower. If the purpose of the report is the assess risk to private equity, as the title states, then it makes no sense to include companies that private equity has already exited. A buyout fund can't be exposed to risk on a company it no longer owns.

Advice to New MBAs: Mean Street says "Hang in there, baby." (Deal Journal) Web 3.0? As Internet evolves, profit is still the missing factor. (Reuters) Great Quotes: From Kara Swisher's overview of the All Things Digital conference on the idea of Web 3.0: "Because whatever name you want to slap onto what's happening, the pace of change does not wait to be defined." (WSJ) You Love Acronyms: Here is a guide to TARP-y acronyms, including the RAT Board, SNAP, and LUST Recovery. (WSJ) Wow: How one car dealership ran up $40 billion in debts. (Reuters)

The recent rash of PE-backed bank buyouts has prompted scores of questions, but I haven't yet heard anyone ask about strategy drift. Are investors okay with their buyout fund managers delving into the world of distressed bank assets? Or, let's look at it this way: Are general partners stepping outside of their bounds to do these deals? Ever since the prospect of private equity investing in banks arose, we've heard of the extreme difficulties posed by such an endeavor. Aside from the burns on deals like WaMu and several J.C. Flowers investments, it's been said that private equity firms don't understand the extensive federal regulation that comes with owning a bank. Aside from that, investors have expressed worries that the government is an unreliable partner, and that the numerous regulatory bodies overseeing banks have no standard policy for private equity investments.