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Buyout Firms Return to Market on Stock Rally as Select Medical Readies IPO

September 24, 2009

By Jason Kelly, Cristina Alesci and Michael Tsang Sept. 24 (Bloomberg) — The owners of Select Medical Holdings Inc. may almost double their money when the hospital operator goes public tomorrow as leveraged buyout firms take advantage of the steepest stock market rally in 70 years. Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC will hold a stake valued at more than $1 billion if Select Medical fetches $12 a share, the midpoint for its initial public offering price. The private-equity firms invested $617 million in cash when acquiring the Mechanicsburg, Pennsylvania-based company in February 2005, according to a regulatory filing . Buyout firms are lining up IPOs to repay debt used to purchase companies and return profits to their investors. KKR & Co., Silver Lake and Fortress Investment Group LLC are among those planning share sales amid a 57 percent gain by the Standard & Poor’s 500 Index since March 9. “In an environment in which private-equity performance has suffered, the ability to demonstrate cash-on-cash returns by exiting investments at an attractive valuation is compelling and may help firms raise future funds,” said Andrew Wright , a partner at law firm Kirkland & Ellis LLP in New York. Select Medical plans to sell 33.3 million shares today at $11 to $13 apiece, raising as much as $433.3 million, according to a U.S. Securities and Exchange Commission filing. The stock is set to begin trading tomorrow on the New York Stock Exchange. Bankers arranged about $1.5 billion in financing for the Select Medical purchase by New York-based Welsh Carson and Thoma Cressey of Chicago, which subsequently split into two firms. The transaction was valued at $2.1 billion including assumed debt, according to data compiled by Bloomberg. The firms will use IPO proceeds mostly to reduce Select Medical’s debt, they said in the filing. Officials didn’t return phone calls seeking comment. KKR’s Pair KKR, based in New York, and Menlo Park, California-based Silver Lake, took Avago Technologies Ltd. public last month in a $745 million deal. The Singapore-based semiconductor maker has gained 16 percent since it began trading in early August. KKR subsequently filed an initial public offering for discount retailer Dollar General Corp. of Goodlettsville, Tennessee. RailAmerica Inc., a Jacksonville, Florida-based railroad operator owned by Fortress, said Sept. 22 it increased the size of its IPO to $450 million from $300 million. New York-based Fortress bought the company in February 2007. Private-equity firms bought a record $1.4 trillion of companies in 2006 and 2007, the height of the leveraged-buyout boom. The global credit crisis brought dealmaking to a halt and prevented firms from selling companies they already owned. ‘Pent-Up Demand’ “There is a pent-up supply of portfolio companies, many of which will go public,” said Jay Ritter , a professor of finance at the University of Florida. “During the last year, exits had ground to a halt.” Companies are selling shares after the S&P 500 climbed in six straight months, restoring about $4.9 trillion to U.S. equity markets. The advance since the gauge fell to a 12-month low in March represents the steepest rally since the Great Depression, according to data compiled by Bloomberg. Health-care stocks are the third best-performing industry behind household-product makers and technology companies in the S&P 500 since it climbed to a record 1,565.15 on Oct. 9, 2007. Ten companies may sell shares to the public this month, the most since January 2008, according to data compiled by Bloomberg. Together, the deals may raise $3.86 billion, the most since March 2008, when Visa Inc.’s $17.9 billion IPO accounted for almost all the money raised. Five companies, including KAR Holdings Inc., a vehicle- auction company based in Carmel, Indiana, and Houston-based Cobalt International Energy Inc., an energy-exploration firm, filed this month to raise as much as $1.82 billion. Talecris Among the biggest scheduled IPOs this month is Talecris Biotherapeutics Holdings Corp. , the drugmaker controlled by private-equity firm Cerberus Capital Management LP and Ampersand Ventures, which plans to raise $850 million on Sept. 30, according to data compiled by Bloomberg. The Research Triangle Park, North Carolina-based maker of protein therapies derived from blood plasma said in its Sept. 10 filing that it seeks to sell 44.7 million common shares at $18 to $20 apiece. At $19 a share, Cerberus and Ampersand would reap a profit of $300 million for their investors by selling 15.8 million shares. After the IPO, the private-equity firms will own 60.5 percent of Talecris, valued at $1.38 billion based on a $19 IPO price. Peter Duda , a spokesman for New York-based Cerberus, declined to comment, as did Becky Levin, a spokeswoman for Talecris, citing the quiet period before the IPO. Past Dividends Cerberus and Ampersand of Wellesley, Massachusetts, created Talecris after buying Bayer AG’s plasma business in 2005. At the time, the purchase was valued at $590 million, with the private- equity firms investing a combined $125 million in cash. Talecris has paid its owners at least $833.2 million in dividends since then, mainly funded by a $1.35 billion loan. Including the payouts, Cerberus and Ampersand are set to earn 20 times their initial cash investment in the company. The company will use its share of IPO proceeds to pay down debt. It doesn’t plan to pay shareholder dividends after the IPO, using all earnings to finance operations, according to its prospectus. To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net ; Cristina Alesci in New York at Calesci2@bloomberg.net ; Michael Tsang in New York at mtsang1@bloomberg.net .

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Euro Falls From One-Year High Versus Dollar Before Meeting of G-20 Leaders

September 23, 2009

By Yasuhiko Seki and Ye Xie Sept. 24 (Bloomberg) — The euro fell from a one-year high versus the U.S. dollar amid speculation that global policy makers will discuss the rapid appreciation of the 16-nation currency at the forthcoming meeting of the Group of 20 leaders. The euro strengthened after Reuters cited a French government official as saying France is concerned about the increasing strength of the euro and intends to press fellow G-20 members to set a timeframe for a discussion on exchange rates. The dollar rose against all 16 most-active currencies following the Federal Reserve’s decision to slow its purchases of mortgage-backed securities and housing agency debt. “The market is becoming sensitive to comments from monetary authorities as the G-20 meeting approaches,” said Kosei Fujita , a foreign-currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “As comments from French government officials added to concerns, people are inclined to close long positions on the euro and other higher-yielding currencies.” A long position is a bet that an asset will rise. The European currency traded at $1.4717 at 8:08 a.m. in Tokyo from $1.4735 yesterday in New York where it touched $1.4844, the weakest level since September 2008. It traded at 134.61 yen from 134.52 yen in New York. The dollar was at 91.46 yen from 91.29 yen yesterday. The French government is seeking a “framework” for discussions, Reuters quoted the official as saying. G-20 leaders will meet in Pittsburgh this week to discuss the latest developments of the global economy and financial markets. FOMC The U.S. currency advanced after the Federal Open Market Committee said in its statement at the conclusion of a two-day meeting yesterday that it will “gradually slow” the pace of its $1.45 trillion in asset purchases and close the program at the end of the first quarter of 2010. The buying was previously scheduled to cease by the end of this year. Fed officials left the target rate for overnight loans between banks at a record low of between zero and 0.25 percent. Yesterday’s decision was unanimous. The Dollar Index , which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, rose 0.4 percent to 76.404. The gauge dropped 15 percent from its 2009 high of 89.624 reached in March on speculation investors sold the dollar to buy higher-yielding assets. Interest-rate futures contracts on the Chicago Board of Trade showed a 43 percent chance the central bank would keep the fed funds target unchanged through March, up from 27 percent odds a month ago. The central bank will hold the benchmark lending rate steady through the end of the first quarter, according to the median forecast of 65 economists surveyed by Bloomberg. The dollar will strengthen to $1.45 per euro and 97 yen by the end of the year, according to economists in a separate survey. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ye Xie in New York at yxie6@bloomberg.net .

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U.S. Banks Will Need More Capital to Cover Credit Losses, CLSA’s Mayo Says

September 22, 2009

By Patrick Rial Sept. 22 (Bloomberg) — U.S. bank shares are set to drop because loans made for commercial real estate will sour and lenders will need to raise more capital to cover credit losses, according to Mike Mayo , an analyst at CLSA Ltd. Regional banks will perform the worst among U.S. lenders because they have the biggest exposure to loans for commercial real estate, Mayo said today at a conference hosted by his company in Hong Kong. The global economic slowdown may still cause another corporate failure in the vein of Enron Corp. or WorldCom Inc., he said. “I would expect to see something along those lines before the cycle is done,” Mayo said. “If you increase risk for two decades it takes time to reduce that risk. Don’t think you can do that overnight.” The analyst, who left Deutsche Bank AG in March, assigned an “underweight” rating to U.S. banks on April 6, causing a gauge of financial companies in the Standard & Poor’s 500 Index to slide 2.9 percent, the biggest decline among 10 industry groups on the day. The financials gauge has rallied 59 percent since then, lifting the average price of its stocks to 26.6 times estimated profit, higher than the broader S&P 500’s 17.8 times. “The sentiment is somewhat positive in the hallway, but I didn’t get the memo,” Mayo said today. Raising Capital The collapse of Lehman Brothers Holdings Inc. a year ago and the ensuing credit crisis has caused more than $1.6 trillion in losses at financial institutions, helping trigger a global recession. The world’s biggest financial companies have raised $1.3 trillion of capital to help cover mounting deficits. Governments around the world responded to the slowdown by boosting spending, cutting taxes and slashing interest rates to revive growth. The MSCI World Index has rallied 68 percent from a 13-year-low on March 9 on speculation of a global recovery. Former Federal Reserve Chairman Paul Volcker said Sept. 17 said there’s a “long way to go” before the economy returns to pre-recession levels. He echoed Fed Chairman Ben S. Bernanke’s Sept. 15 assessment that while the recession is probably over, “it’s still going to feel like a very weak economy for some time.” Mayo gained a reputation for independence for his willingness to put a “sell” rating on banks he covered. The analysts rates all 16 banks that he covers “underperform” or “sell,” and at Deutsche Bank he had “sell” or “hold” ratings on all 18 companies he covered, data compiled by Bloomberg show. Houston-based energy company Enron filed what was the largest Chapter 11 bankruptcy in history on Dec. 2, 2001. That was overtaken by WorldCom’s own filing on July 21 the following year. WorldCom, which handled more than half the world’s Internet traffic, filed for protection from creditors after disclosing it hid expenses to mask losses. To contact the reporter for this story: Patrick Rial in Hong Kong at prial@bloomberg.net .

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Neuberger’s Vale Joins Line of Lehman Workers Filing Compensation Claims

September 12, 2009

By Christopher Scinta and Linda Sandler Sept. 12 (Bloomberg) — Judith Vale , the Neuberger Berman LLC money manager who said top executives of Lehman Brothers Holdings Inc. should cut their bonuses, joined several other employees in filing claims against bankrupt Lehman for unpaid stock awards, overtime and other compensation. Vale, who runs the Neuberger Berman Genesis Fund, filed a $12.3 million claim for stock awards and other compensation in U.S. Bankruptcy Court in New York last month. Joseph Gregory , Lehman’s former president and chief operating officer, filed a $233 million claim for deferred compensation in May. Some claims, including Gregory’s, asserted they were “priority” claims, to be paid ahead of unsecured creditors. Under bankruptcy law however, no more than $11,000 in wages, salary or commissions earned six months before bankruptcy can be paid as a priority, and stock options rank at the bottom of the heap. “Many former employees of Lehman Brothers will file normal proofs of claim related to their individual compensation prior the spin-out of Neuberger Berman as a private independent firm,” Randall Whitestone , a Neuberger Berman spokesman, said in an e-mail. Kimberly Macleod , a Lehman spokeswoman, didn’t immediately respond to e-mails or calls seeking comment. The deadline for filing proofs of claims against Lehman, once the fourth-largest investment bank and now liquidating in bankruptcy, is Sept. 22 at 5 p.m. New York Time. Vale wrote in a June 2008 e-mail published on the Web site of the U.S. Committee on Oversight and Government Reform that Lehman’s “top management should forgo bonuses this year.” $10 Million Claims Other claims topping the $10 million mark included those filed by Robert D’Alelio of Neuberger Berman seeking $12.9 million for compensation and restricted stock, and Neuberger Berman Managing Director Richard Glasebrook , who is seeking $20.1 million for compensation and stock units. Joshua Tarnow filed a $16.5 million claim for deferred compensation and restricted stock. Brian Monahan , now at Barclays Capital Inc., filed a claim for $15.6 million for compensation including unpaid overtime and vacation as well as contributions to retirement savings. The Monahan claim may be revised before the deadline, said a person familiar with the matter. Vale, Gregory and D’Alelio didn’t immediately return calls or e-mails seeking comment. Monahan, Glasebrook and Tarnow declined to comment. Lehman’s headquarters and North American brokerage was bought by Britain’s Barclays Plc. Neuberger Berman money managers acquired 51 percent of the firm without putting up any cash. The rest is owned by Lehman’s creditors. Lehman filed the biggest U.S. bankruptcy in September with assets of $639 billion and still owes creditors as much as $250 billion, Chief Executive Officer Bryan Marsal said in May. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net ; Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net .

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Australia’s Retail Sales Survive Global Slump, May Suffer During Recovery

September 8, 2009

By Jacob Greber Sept. 9 (Bloomberg) — Australian retail sales growth will slump as a boost from government cash handouts to consumers wanes and rising interest rates erode disposable incomes, research-company Access Economics said. Retail sales growth, adjusted to remove the effect of inflation, will slow to 0.8 percent in the 12 months through June 2011 from 1 percent in the current fiscal year, Access Director David Rumbens said in a report released in Canberra today. Sales will gain 3.7 percent in 2011-12. Household spending surged 4.1 percent in the year to June 2009 at retailers including Harvey Norman Holdings Ltd., Australia’s largest furniture and electrical seller, stoking the fastest economic expansion last quarter in more than a year. The government has distributed more than A$12 billion ($10.2 billion) in cash to consumers this year and the central bank has slashed borrowing costs to a half-century low. “We have spent our way through the most turbulent period in the global economy in 60 years,” helping retailers survive “the bust in rather spectacular fashion,” Rumbens said in the report. “Surviving the recovery may prove to be a trickier proposition,” he added. “The cash handouts are beginning to fade, interest rates are more likely to rise than be lowered, and the labor market is still set to weaken.” Retail sales unexpectedly dropped 1.4 percent in June, the first decline in four months, a report showed on Aug. 4. Sales probably rose 0.5 percent in July, according to the median estimate of 20 economists surveyed by Bloomberg News. The figures will be released at 11:30 a.m. in Sydney today. Retail Profits Mark McInnes , chief executive officer of Australia’s second-biggest department-store chain, David Jones Ltd., said last month that while sales in the three months through June were “pleasing,” there is “still some uncertainty in relation to the future outlook.” Growth in profit after tax for the year ending July 2010 will be between zero and 5 percent, Sydney-based David Jones said on Aug. 5. Since the collapse of Lehman Brothers Holdings Inc. almost a year ago, the government has handed out more than A$20 billion to households, cut taxes and is spending another A$22 billion upgrading roads, ports, railways and schools. The spending helped boost gross domestic product by 0.6 percent in the three months through June from the previous quarter, when it gained 0.4 percent, a report showed last week. Consumer Confidence “To what extent, if at all, retail spending will moderate further over the coming months as the cash handout effect fades is the key question,” said Rumbens. “You can’t keep spending a temporary windfall, but at the same time the underlying economic environment is certainly much brighter now than six months ago.” Consumer confidence has climbed to the highest level in almost two years. Westpac Banking Corp. will release this month’s consumer sentiment survey results at 11 a.m. in Sydney today. Household disposable income will probably fall 2.7 percent in the 12 months through June 2010 before rising 1.7 percent the following year, today’s Access report says. Incomes rose by an annual average of 3.2 percent for the past five fiscal years. While unemployment is rising less than forecast by the government, “the average number of hours worked by employees is falling, which will cut into underlying incomes,” Rumbens said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Greenspan Says Banks Should Be Forced to Boost Capital on Balance Sheets

September 7, 2009

By Pooja Thakur and Anoop Agrawal Sept. 7 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said banks should be forced to hold more capital on their balance sheets, echoing a weekend push by finance ministers from the Group of 20 nations. “Capital requirements even during non-crisis periods have to have a larger buffer,” the 83-year-old former policy maker said today via teleconference to the Antique India Markets Conference in Mumbai. “We do need significant changes.” Greenspan made his call for tighter capital requirements two days after a G-20 meeting in London proposed requiring banks to increase the quantity and quality of assets they keep in reserve for when economies stumble. The drive to revamp regulation comes after excessive risk-taking by the world’s banks led to $1.61 trillion in losses and writedowns, taxpayer- funded bailouts and a global recession. “Financial intermediaries allowed institutions to go into default by taking this kind of risk,” Greenspan said. “There’s no substitute for capital. Don’t think the crisis could have been prevented unless we can change human nature.” Once regarded by some observers as the greatest central banker, Greenspan has seen his legacy criticized since the U.S. subprime-mortgage market collapsed in 2007. Having run the Fed from 1987 to 2006, he said last in October that a “flaw” in the ideology of free-market risk management he had espoused contributed to the “once-in-a-century” credit crisis. ‘Euphoria’ Greenspan today repeated how rare the turmoil was and blamed it on an under-pricing of risk or “building of euphoria” that emerged at the start of the century as interest rates and inflation ran into single-digits. His hands-off approach to asset bubbles has been challenged by some Fed district-bank presidents, such as Janet Yellen . Former Fed Vice-Chairman Alan Blinder and Stanford University professor John Taylor are among the economists who say Greenspan also left interest rates too low for too long earlier this decade, encouraging the easy credit that fostered the housing bubble . Speaking a week before the first anniversary of the collapse of Lehman Brothers Holdings Inc., Greenspan said that event had led to a “massive contraction” in trade financing and surge in inventories. He predicted some exotic financial instruments, such as collateralized debt obligations, won’t return even after the crisis passes. The former Fed chairman has returned to his role as a private economic forecaster, speaking at conferences and to groups of bankers and investors, while consulting for clients such as Deutsche Bank AG. To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net

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Credit Suisse in Early Talks to Buy Mesirow’s $11 Billion Fund of Funds

September 4, 2009

By Katherine Burton Sept. 4 (Bloomberg) — Credit Suisse Group AG held preliminary talks with Chicago-based Mesirow Financial Holdings Inc. about buying its $11 billion business that invests clients’ cash in hedge funds, according to two people familiar with the discussions. Credit Suisse, based in Zurich, already manages almost $15 billion in its hedge fund of funds unit. The talks are in the early stages and could fall through, the people said. Officials for both Credit Suisse and Mesirow declined to comment. The talks were first reported in Alternative Investment News. Even though fund of funds underperformed single-manager hedge funds last year and in 2009, some larger firms have been able to attract money this year from institutions too small to make investments directly into hedge funds. New York-based Blackstone Group LP had inflows of $4 billion in the first six month of the year into its funds, including hedge fund of funds, according to its second-quarter earnings statement. Hedge fund of funds lost 21.4 percent last year, compared with about 19 percent for single-manager hedge funds, according to Chicago-based Hedge Fund Research Inc. This year through July, hedge funds have climbed about 12 percent on average, compared to 6.8 percent for fund of funds, the research firm said. To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

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Barclays Said to Repackage Top-Rated Bonds From $1 Billion Downgraded CDO

September 3, 2009

By Pierre Paulden Sept. 3 (Bloomberg) — Barclays Capital repackaged a portion of a $1 billion collateralized debt obligation managed by Highland Capital Management LP that was downgraded in July into new securities with the highest credit ratings. Barclays Capital is selling $77.25 million of securities backed by leveraged loans with AAA rankings from Standard & Poor’s and Moody’s Investors Service, said a person familiar with the offering who declined to be identified because the deal is private. The bank also created an $18.8 million piece rated AAA by S&P and a $250,000 unrated slice, according to the bond agreement. Banks are turning downgraded securities into new investments with top credit ratings, seeking to create more valuable debt to sell or to restructure investors’ holdings. New York-based Barclays Capital is modeling the financing structure after so-called re-REMICs, which bundle mortgage bonds into new securities that may offer investors an additional layer of protection, or collateral, from downgrades. “Critics of this practice have argued that it appears to be the creation of something from nothing — in effect ‘alchemy,’” Moody’s analyst Leonid Mogunov wrote in an August report. “Such repackaging can in fact produce at least one class of notes more creditworthy than the underlying CLO tranche,” he wrote. The new bonds, known as Blue Wing Asset Vehicle, were created from the safest portion of Westchester CLO Ltd., a $1 billion CDO arranged in May 2007 by Lehman Brothers Holdings Inc. and managed by Dallas-based Highland. Brandon Ashcraft, a Barclays spokesman in New York, declined to comment. Kevin Latimer , a partner at Highland, didn’t return a telephone call for comment. ‘Arbitrage Opportunities’ Credit-rating cuts may sometimes force investors to sell the debt and cause financial institutions that own the bonds to increase capital. More than $27 billion of home-loan bond re- REMICs were issued this year, according to a June report by Bank of America Corp., compared with $17 billion in all of 2008. CDOs parcel fixed-income assets such as bonds or loans and slice them into new securities of varying risk intended to provide higher returns than other investments of the same rating. Westchester is a type of CDO called a collateralized loan obligation, or CLO, which focuses on doing the same with company loans. “Repackaging is typically a regulatory maneuver,” said Gene Phillips , a director at PF2 Securities Evaluations Inc., an advisory firm in New York. “Some investors are also unable to hold securities that are rated below AAA.” Moody’s lowered the $570.5 million top-ranked piece of Westchester CLO by three levels in July, to Aa3 from Aaa, citing an increase in defaults and low-ranking company loans. The ratings company has cut 2,560 portions from more than 650 loan CDOs this year through July 31. “We expect to see more repacks as AAA downgrades have increased,” Phillips said. To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

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Pimco Says Avoid `Black Holes’ in High-Yield Bonds as Recovery Rates Fall

September 1, 2009

By Tom Kohn Sept. 1 (Bloomberg) — Pacific Investment Management Co. , the world’s biggest manager of bond funds, said investors should avoid “black holes” of the junk bond market as recovery rates drop. “We’re somewhat more cautious about high-yield bonds,” Curtis Mewbourne , a managing director at Pimco, wrote in an article on the firm’s Web site . “Careful attention to credit selection and avoidance of so-called ‘black holes of credit’ will likely be a critical component to a successful investment strategy.” Default rates may rise, while recovery rates for defaulted debt have fallen below 20 percent from about 40 percent, Mewbourne said, citing Moody’s Investors Service data. Corporate bonds have rallied this year as markets rebounded from the financial crisis sparked by the collapse of the U.S. housing market in 2007 and Lehman Brothers Holdings Inc. last year. Pimco judges business and economic conditions are worse than in the third quarter of 2008, while credit spreads have returned to pre-Lehman levels, Mewbourne said. Bonds have returned investors 13 percent this year, according to Merrill Lynch & Co.’s Global Broad Market Corporate Index. “We don’t think a large allocation to high yield makes sense right now given our expectations that default rates will continue to rise and recovery rates will remain lower for unsecured bondholders,” he said. “However, there are select opportunities.” Mewbourne said Pimco is finding “compelling value” in some parts of the investment-grade corporate bond market. The company likes high-grade bank and utilities bonds, and some energy bonds. It also favors some high-yield metal and mining companies that will benefit from emerging-market demand for commodities, he said. High-yield, or junk, bonds are rated below BBB- at Standard & Poor’s and Baa3 at Moody’s. Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE. For Related News and Information: U.S. recession: STNI USRECESSION Sovereign debt monitor: SOVR Credit crunch page: WWCC Short-term liquidity: SLIQ Credit market watch: CMW

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Loans to European Companies, Individuals Expand at Slowest Pace on Record

August 27, 2009

By Jana Randow Aug. 27 (Bloomberg) — Loans to households and companies in Europe grew at the slowest pace on record in July after the worst recession since World War II curbed demand for debt and banks tightened credit standards. Loans to the private sector rose 0.6 percent from a year earlier, the slowest growth since records began in 1991, after increasing an annual 1.5 percent in June, the European Central Bank said today. On the month, loans fell 0.4 percent, the biggest decline ever recorded. M3 money-supply growth, which the ECB uses as a gauge of future inflation, slowed to 3 percent from 3.6 percent. The global recession has made banks more reluctant to lend and eroded company and household demand for credit. The ECB, which kept its benchmark interest rate at a record low of 1 percent this month, is buying covered bonds and flooding banks with cash in an effort to revive lending. The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly emerged from recession. “The decline in new loans is primarily demand-driven and reflects, until recently, terrible economic conditions,” said Michael Schubert , an economist at Commerzbank AG in Frankfurt. “While demand will improve in the coming months, credit supply may worsen further. We won’t see a sustainable recovery in loan issuance before next year.” European banks tightened credit standards for companies and households again in the second quarter, albeit less aggressively than in the first, according to a survey published by the ECB on July 29. Policy makers have urged banks to clean up their balance sheets and step up lending after the collapse of Lehman Brothers Holdings Inc. last year exacerbated the global slump. In the three months through July, annual M3 growth slowed to 3.4 percent from 4.1 percent in the three months through June, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money- market holdings. Demand for the most liquid assets rose. The annual rate of M1 money-supply growth increased to 12.2 percent in July from 9.4 percent in June. To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net .

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Loans to European Companies, Individuals Expand at Slowest Pace on Record

August 27, 2009

By Jana Randow Aug. 27 (Bloomberg) — Loans to households and companies in Europe grew at the slowest pace on record in July after the worst recession since World War II curbed demand for debt and banks tightened credit standards. Loans to the private sector rose 0.6 percent from a year earlier, the slowest growth since records began in 1991, after increasing an annual 1.5 percent in June, the European Central Bank said today. On the month, loans fell 0.4 percent, the biggest decline ever recorded. M3 money-supply growth, which the ECB uses as a gauge of future inflation, slowed to 3 percent from 3.6 percent. The global recession has made banks more reluctant to lend and eroded company and household demand for credit. The ECB, which kept its benchmark interest rate at a record low of 1 percent this month, is buying covered bonds and flooding banks with cash in an effort to revive lending. The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly emerged from recession. “The decline in new loans is primarily demand-driven and reflects, until recently, terrible economic conditions,” said Michael Schubert , an economist at Commerzbank AG in Frankfurt. “While demand will improve in the coming months, credit supply may worsen further. We won’t see a sustainable recovery in loan issuance before next year.” European banks tightened credit standards for companies and households again in the second quarter, albeit less aggressively than in the first, according to a survey published by the ECB on July 29. Policy makers have urged banks to clean up their balance sheets and step up lending after the collapse of Lehman Brothers Holdings Inc. last year exacerbated the global slump. In the three months through July, annual M3 growth slowed to 3.4 percent from 4.1 percent in the three months through June, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money- market holdings. Demand for the most liquid assets rose. The annual rate of M1 money-supply growth increased to 12.2 percent in July from 9.4 percent in June. To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net .

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Asian Stocks Decline, With China Approaching Bear Market; Maanshan Falls

August 18, 2009

By Jonathan Burgos and Shani Raja Aug. 19 (Bloomberg) — Asian stocks fell, with China’s key index approaching levels signaling a bear market, after Maanshan Iron & Steel Co. reported losses and Japanese regulators said new guidelines will hurt insurers’ solvency ratios. Maanshan Steel, China’s No. 4 listed steelmaker, sank 6.9 percent in Shanghai. Tokio Marine Holdings Inc. dropped 2 percent in Tokyo. Honda Motor Co. , Japan’s No. 2 automaker, added 1.7 percent after Nomura Holdings Inc. upgraded Japan’s auto industry. Qantas Airways Ltd. , Australia’s biggest airline, advanced 4.6 percent as it signaled improving passenger volumes. The MSCI Asia Pacific Index fell 0.3 percent to 110.33 as of 2:54 p.m. in Tokyo, erasing an earlier gain of 0.6 percent. The gauge has rallied 56 percent from a more than five-year low on March 9 amid speculation the global economy is recovering. “The earnings season has been surprising,” said Nader Naeimi , a Sydney-based strategist at AMP Capital Investors, which manages about $95 billion. “It’s given investors confidence the recovery is coming through and that valuations will be supported by strong earnings. Still, markets have rallied a long way and are vulnerable to bad news.” To contact the reporter for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net .

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Hertz Plans to Photograph Rental Cars to Boost Damage Payments, CEO Says

August 18, 2009

By Carol Wolf Aug. 18 (Bloomberg) — Hertz Global Holdings Inc. is testing photographic equipment that will scan its vehicles for dings and dents before and after a rental to boost damage payments and save time. The company currently loses about $170 million in damage payments a year, Chairman and Chief Executive Officer Mark Frissora , 54, said in a telephone interview yesterday. The photo system is part of a broader plan to use technology to increase efficiency and improve customer service, Frissora said. The equipment produces a high-resolution, digital photograph of the rental car, and will compare before and after pictures for differences, Frissora said. Hertz employees currently walk around the vehicle and mark any damage on a form, which the customer signs. “There will be no discussion because the document would clearly show any incremental damage,” Frissora said. “This keeps customers from being placed in a confrontational position and saves time.” The Park Ridge, New Jersey-based company’s customers would sign a waiver acknowledging the process and be billed for any damage, Frissora said. Hertz is testing the technology at a location at an airport in the northeastern U.S., he said. The car-rental company also has “a couple” hundred million dollars for acquisitions and technology investments, he said. One target may be the producer of the photo equipment, he said, declining to identify the company. Automoti, Eileo Hertz bought Automoti Group Inc., a Web site where consumers can buy used cars, in July. It uses the company’s software for a program that allows customers to rent a vehicle for three days before buying it. Hertz purchased Paris-based Eileo SA, a maker of technology used in arranging hourly rentals, in April. The company has also increased the use of self-serve kiosks to rent and return vehicles, the CEO said. The company’s technology investments “are worth it for the returns,” Betsy Snyder , a fixed-income analyst with Standard & Poor’s in New York, said in a telephone interview. “It’s the cost of doing business.” Hertz may as much as triple purchases of companies which rent machines like front-end loaders and power-generation equipment, he said. That business represents about 20 percent of annual sales, he said. The company plans to buy about 15 of the companies per year, up from four or five currently, he said. Hertz fell 12 cents, or 1.2 percent, to $9.98 at 9:54 a.m. in New York Stock Exchange composite trading. The shares gained 99 percent this year before today. To contact the reporters on this story: Carol Wolf in Washington at cwolf@bloomberg.net

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Pimco Says Buy Investment-Grade Debt of Banks, Utilities, Energy Companies

August 13, 2009

By John Glover and Matthew Brown Aug. 13 (Bloomberg) — Investment-grade bonds from large banks and financial institutions, utilities and some energy companies make “compelling” purchases, according to Pacific Investment Management Co. LLC. Yield premiums have now returned to about what they were before the collapse of Lehman Brothers Holdings Inc. in September, Curtis A. Mewbourne , a managing director and portfolio manager at Newport Beach, California-based Pimco, said in a research report today. While systemic risk has subsided and investors have re-entered the market, economic and business conditions are “significantly worse” than in the third quarter of last year, Mewbourne said. “Yield spreads for high-quality investment grade corporate bonds are still wide relative to historical levels, and we think attractive risk-adjusted value still exists in certain areas of this market,” he said. “There is a clear disconnect between financial markets and underlying fundamentals .” Economic growth will continue to underpin emerging markets, although Pimco expects them to divide into two groups. Those with fiscal and economic imbalances will probably alternate between austerity and instability, while those such as Brazil and China with stronger finances and growing internal markets will “maintain their development breakout phase, though not at the torrid pace of recent years,” Mewbourne said. ‘More Cautious’ Pimco is “somewhat more cautious” about high-yield corporate bonds because it expects defaults to rise. Recoveries after defaults, which recently dropped below 20 percent, will remain “depressed,” Mewbourne said. There are “select opportunities” in high-yield, such as metals and mining companies that stand to benefit from developing nations’ demand for commodities, Mewbourne said. These “look cheap given their improving credit fundamentals,” he said. Outside of the “three core credit sectors,” investors can make money buying “very senior” bonds backed by commercial and residential mortgages. The company is “cautious” on the securities, Mewbourne said. To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net ; Matthew Brown in London at mbrown42@bloomberg.net

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Libor-OIS Narrows to 25 Basis Points, the Level Greenspan Called `Normal’

August 13, 2009

By Lukanyo Mnyanda Aug. 13 (Bloomberg) — The Libor-OIS spread narrowed to a level former Federal Reserve Chairman Alan Greenspan said he regarded as “normal,” adding to evidence the freeze in credit markets is thawing. The spread, which gauges the reluctance among banks to lend, fell 1 basis point to 25 basis points today, the least since Jan. 24, 2008. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse in September. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points. “Undoubtedly, things have improved an awful lot,” said David Keeble , head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. The level “is a big psychological barrier for many central banks and money-market participants.” Financial institutions are becoming less wary of lending after central banks around the world cut interest rates to near zero and offered unlimited funds to unlock credit. U.S. authorities pledged $12.8 trillion in an attempt to revive credit markets and combat a recession that has cost financial companies more than $1.6 trillion in writedowns and losses. The Libor-OIS spread measures the premium banks charge over what traders predict the Fed’s daily effective federal funds rate will average over the next three months. It averaged 11 basis points in the five years to August 2007, when credit markets began seizing up. Growth to Return U.S. gross domestic product will probably expand by 2.2 percent next year, after contracting by 2.6 percent in 2009, according to the median forecast of 79 economists surveyed by Bloomberg News. While the cost of borrowing between banks has fallen, there are few signs of a revival in lending, according to Commerzbank AG, Germany’s second-largest lender. “Things have definitely changed,” said Christoph Rieger , co-head of fixed-income strategy at Commerzbank in Frankfurt. “But spreads are low because banks are not willing to borrow and have no need to. The bottom line is that these levels are artificially low.” Other measures of stress show signs that the banking industry is normalizing as the global economy emerges from the deepest recession since World War II. The TED spread , the difference between what financial institutions and the U.S. Treasury pay to borrow for three months, dropped below 30 basis points Aug. 4 for the first time since March 2007. It was at 28 basis points today, after peaking at 464 basis points in October. Corporate Bond Sales Credit markets started freezing in August 2007, when losses from subprime mortgages left financial institutions with billions of dollars in securities and financial contracts they couldn’t value. Markets contracted further in September 2008, when Lehman filed for bankruptcy. U.S. companies sold $898 billion of bonds this year in the busiest period since at least 1999, when Bloomberg began collecting the data. Issuances in Europe climbed to a record $1.2 trillion, beating the previous record set for the whole of 2007, as the best returns since 1998 lured investors. Investment-grade securities in euros handed bondholders 10.3 percent this year, including reinvested interest, according to Merrill Lynch & Co. index data. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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Ex-Macquarie Property Chief Bill Moss, Lehman’s Willis Start Advisory Firm

August 3, 2009

By Malcolm Scott Aug. 4 (Bloomberg) — Bill Moss , the former head of banking and property at Macquarie Group Ltd. , and Glenn Willis , ex- managing director of Lehman Brothers Holdings Inc. in Australia, teamed up to start an advisory and funds management firm.

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Asian Stocks Rise on Earnings, Commodities Prices; BHP, Panasonic Advance

August 3, 2009

By Jonathan Burgos and Masaki Kondo Aug. 4 (Bloomberg) — Asian stocks climbed after Panasonic Corp.

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Barclays Will Hire as Many as 1,000 People for Mergers, IPOs, Diamond Says

August 3, 2009

By Ambereen Choudhury Aug. 3 (Bloomberg) — Barclays Plc , the U.K.’s second- biggest lender, plans to hire as many as 1,000 people, including investment bankers at its Barclays Capital unit, by the end of the year to compete in mergers advice and share sales.

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S&P Says Investors Can’t Sue Over High Ratings on Worthless Lehman Bonds

July 31, 2009

By David Watts Barton and Karen Gullo Aug. 1 (Bloomberg) — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings sought dismissal of a lawsuit by two California investors, claiming they weren’t responsible for the plaintiffs’ investment decisions

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AIG Unit Keeps $2.4 Billion From Asset Sales as Taxpayers Wait for Payment

July 27, 2009

By Hugh Son July 28 (Bloomberg) — American International Group Inc. , the insurer dismantling itself to repay U.S

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Dollar Libor Declines to Below 0.50% for First Time as Banks Unlock Credit

July 27, 2009

By Anchalee Worrachate July 27 (Bloomberg) — The rate banks say they charge each other to borrow in dollars for three months fell below 0.50 percent for the first time, signaling central banks’ efforts to end the two-year seizure in credit markets are working. The London interbank offered rate, or Libor, for such loans dropped to 0.496 percent today, from 0.502 percent on July 24, the British Bankers’ Association said, taking its decline this year to 93 basis points. The rate, a benchmark for about $360 trillion of financial products around the world, peaked at 4.82 percent on Oct.

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CIT May Sell Railcar, Aircraft Leasing Units in Fight to Avert Bankruptcy

July 23, 2009

By Christine Harper and Zachary R. Mider July 24 (Bloomberg) — CIT Group Inc

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CIT Bondholders Agree to $3 Billion Emergency Financing to Avert Collapse

July 20, 2009

By Pierre Paulden, Linda Shen and Ari Levy July 20 (Bloomberg) — CIT Group Inc. said bondholders agreed to provide $3 billion in emergency financing, giving the 101-year-old commercial finance company time to devise a recovery plan that averts collapse. CIT is receiving a $3 billion secured term loan with a 2 ½- year maturity, the New York-based company said today in an e- mailed statement

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