Erin Griffith

Bankruptcy-related M&A surged in March with 34 acquisitions ($698mln), a level not seen in five years, since August 2004 (38), according to Thomson Reuters. “In the previous economic cycle bankruptcy-related M&A peaked in July 02 with 86 transactions announced and 8 months before equity markets reached the bottom and started their recovery,” a report from this morning stated. Meanwhile, according to data from Bankruptcy Week, the number of public companies that filed for Chapter 11 bankruptcy protection was almost as much as the two prior months combined. March saw 31 public companies go bankrupt. Add that to the respective 18 and 19 from January and February, and the total for public companies in Q1 is 68. That’s quite a few more than the private equity-backed company total of 25 (although some of them, like KKR’s Masonite, count as both). Follow the jump for charts.

You may remember Goldman Sachs Liquidity Partners III LP. The group, part of Goldman's hedge fund group, raised $1.8 billion in late 2007, including $100 million from Goldman itself. Levering it 3x, the fund invested in distressed debt, including leveraged loans, mortgages and asset-backed securities. Well, they were juuuust a bit early. The fund was down more than 55% as of last fall. In fact, the effort proved so disastrous that Goldman decided last November to waive the fund’s lock-up period, allowing investors to recoup their money. The fund has a 1/20 fee structure, but with the redemptions it has received, its managers are basically working for free. Reading through yesterday’s Bloomberg article on the problems of Apollo Management, I have to wonder when that firm is going to do the same for its Apollo Credit Opportunities Fund, considering at least $2 billion worth of loans it bought have lost half their value. According to Bloomberg:

IPO Chatter: It's back. But is it just chatter? Just because more companies want to go public, and there's one well-received IPO on the books, doesn't mean all the signs of a revival are there. (WSJ) Bank Meltdown Tours: One enterprising former banker is taking advantage of the crisis. "Instead of leaving Wall Street, Luan ... has launched a financial meltdown tour, guiding packs of mostly European tourists around the epicenter of the collapse-and explaining his own role in the crisis along the way." (Big Money) Breaking Ground: Can private equity play the infrastructure game? (The Deal) Yikes: What can happen when you lend or buy the debt in your own portfolio companies. (Reuters Columnist Margaret Doyle)

When Big 10 Tire flipped to Chapter 11 last week, it was the fifth Sun Capital Partners portfolio company to do so in 2009. The turnaround firm's standard response to questions regarding its bankruptcies is "look at the percentages." And I would agree: Because of the size of its funds and because of the dirt-cheap prices it pays for failing companies, Sun Capital has many, many portfolio companies. Its website lists 70, to be exact. BUT: Sun has had five companies go bankrupt in 2009. Add that to the five that ended up in bankruptcy last year and you've got an even ten (eleven if you count its PIPE into Sharper Image from Sun Capital Securities). That represents 14% of the total portfolio, which is quickly approaching a high percentage.

In the past month, write-downs on the year-end values of buyout funds have trickled into the press. The discounts have been attributed to a variety of factors, including mark-to-market accounting and weakened portfolio company performance. I post these with the caveat that its not fair to compare, because each firm can look at mark-to-market accounting slightly differently. Further, this list only includes write-downs from the nine funds we were able to gather information on. But on a rough year-over-year basis, Bain Capital IX and Blackstone Communications Partners took the biggest hits. On a quarterly basis, MatlinPatterson's first fund was battered the worst, with AIG Private Equity a close second. Here is a roundup of the numbers we have gathered to date:

Signs: Things are so bad that lenders are ignoring defaults? (Economic Trend Analysis) Give Me One Reason: Why we should treat Detroit more harshly than Wall Street. (Breakingviews via Abnormal Returns) HEY! The Depression is over! Because Jim Cramer says so! (Cityfile) Happy To Know: Polaroids will live on under the umbrella of a private equity firm (after another failed to save it from a second bankruptcy). (Boston Business Journal)

Bruckmann Rosser Sherrill & Co.’s third buyout fund may be the latest firm to enter what we’ve been calling “Fundraising Purgatory.” It’s a place where not-yet-aborted funds lay in wait for “market conditions to approve.” Since neither the firm or Knight Capital, its placement agent, wouldn’t call me back, I can’t be clear, but let’s look at the facts: Bruckmann Rosser entered the market, seeking $600 million, as early as July of 2007. That is 20 months ago. According to a Buyouts report, the fund accumulated $250 million from existing investors, with plans to hold a first close on that sum, in October 2007. Yet according to regulatory filings, the firm has

As usual, we have a week of ratings downgrades on the debt of LBO-backed companies, via ratings agencies Moody’s and Standard & Poor’s. This week we have thirteen. One Note: This list excludes downgrades to ‘D’ for ‘default’ on companies that have filed for Chapter 11 bankruptcy protection. Check the quarterly LBO-backed bankruptcy list for those. However, it does include defaults and ‘SD,’ or ‘selective defaults’ on companies that have not yet filed for bankruptcy. I say this because this list is becoming just as much a way to track distressed debt exchanges as it is to track ratings downgrades. We also have a rebellious ratings agency first (at least in my experience). The story is this: Similar to public company analysts, debt-laden companies pay ratings agencies to examine and report on their debt. Sometimes, when a company’s ratings get too ugly, a company will ask the agency to withdraw its rating, and S&P or Moody’s will oblige. Such is the case with Six Flags, except instead of hiding its analysis from the public, S&P issued its first ever (to my knowledge) “unsolicited” rating on the company. Way to take on the man, S&P.

Greed Now Bad: Maurice Greenberg testifies, calls traders greedy. (Dealbook) Creativity: Yesterday we discussed how KKR is getting creative with debt. Today Deal Professor looks at Blackstone's Freescale situation. (Dealbook) GAH! CNBC breaks out the Nonabox. (Infectious Greed) More Bad News: Pensions face a severe, synchronized downturn. (Naked Capitalism)

Yesterday we wrote that Pacific Investment Management Company, or Pimco, has raised $224.2 million for its secondary distressed mortgage fund. The target is $3 billion. It launched fundraising about 7 months ago, so considering its $3 billion target, the effort isn’t racking up commitments at a breakneck pace. But then again, who is these days, I thought. Well, today I obtained a copy of the year-end results for the first distressed mortgage fund, and it gives me a pretty good idea as to why the fundraising on this effort is slow. The fund, called PIMCO Distressed Mortgage Fund I LP, had a total of $2.8 billion in commitments. Since it’s inception on Oct. 31, 2007, the fund has earned