LIKE IT'S 1999

Sun Capital takes a second swing with a subprime lender.

The US subprime mortgage market is in a steep decline, and some of the chaos has spread to the broader market. In June, two Bear Stearns hedge funds lost nearly all their value due to the collapse in value of subprime mortgage-backed securities. US Federal Reserve chairman Ben Bernanke has noted that the subprime situation has affected the buyout market, as firms face increasing difficulty rounding up debt financing.

Chaos spells opportunity for turnaround investors like Sun Capital Partners. In late July, the Boca Raton, Florida-based firm agreed to buy an 80 percent stake in First NLC Financial Services, a subprime mortgage originator. This is the second time Sun Capital has invested in the company. The firm bought 55 percent of First NLC in 1999, when the company was in the midst of another industry trough, says Sun Capital vice president Brian Urbanek, who led the latest deal.

Although no two mortgage environments are the same, Urbanek said, conditions in 1999 were very similar to the conditions prevailing today. After strengthening the company's management team, upgrading its IT systems, and reducing the number of mortgage offerings the company marketed, Sun Capital was able to sell its stake in First NLC to Virginia financial services company Friedman, Billings, Ramsey Group for $88 million.

Now, Sun Capital is buying the lender back from FBR for $60 million, at a time when major US subprime mortgage originators are rapidly folding. New Century Financial, the second-largest subprime mortgage finance company in the US, filed for bankruptcy protection in April, and American Home Mortgage Investment reported in late July that it no longer had cash to fund new loans, causing its stock to plummet 90 percent. Also in late July, IndyMac Bankcorp reported a 57 percent drop in its second quarter profits.

Urbanek says he has confidence that First NLC will pull through, just as it did after the 1999 acquisition. First NLC's co-founder, Neal Henschel, has echoed this certainty in the company's future. He plans to reposition First NLC's offerings to reflect market demands, he said, which means that First NLC's products will now carry a coupon of around 9.5 percent.

Investors have reportedly balked at buying $12 billion (€8.7 billion) in loans pertaining to the sale of Chrysler to Cerberus Capital Management. A JPMorgan-led group of banks has tried unsuccessfully since June to sell the loans and has now opted to absorb $10 billion worth and try to sell them at a later date, while Cerberus and Daimler will shoulder the remaining $2 billion. A £5 billion financing package for KKR's buyout of UK retailer Alliance Boots also suffered indigestion (see page 48), with JPMorgan, Deutsche Bank and Unicredit postponing the sale of senior debt and sweetening terms for junior debt.

European private equity firm CVC Capital Partners will buy US-listed luggage maker Samsonite Corporation, for $1.7 billion (€1.3 billion) including the assumption of debt. CVC will acquire all outstanding shares of Samsonite's stock for $1.49 per share in cash. Though the deal was led by CVC's European arm, it comes in the midst of an effort to expand the firm's US presence. CVC opened its first US office this January. The private equity firm plans to orient Samsonite more towards the luxury market and Asia. CVC said the company will likely target an IPO in future.

US private equity firms Madison Dearborn Partners and Providence Equity Partners, along with Teachers' Private Capital, the buyout arm of the Ontario Teachers' Pension Plan, won a hard-fought bidding war for Canadian telecom giant BCE. The consortium agreed to pay C$51.7 billion ($48.5 billion; €35.4 billion) for the company, including C$16.9 billion of debt. The transaction values BCE at 7.8 times EBITDA for the year ending 31 March 2007. Under the terms of the deal, Teachers' will acquire a 52 percent stake in BCE, Providence 32 percent, and Madison Dearborn 9 percent.

The Blackstone Group agreed a deal to buy Hilton Hotels Corporation for $26 billion (€19 billion). The deal will give Blackstone 2,800 hotels in 76 countries, adding to its existing real estate empire of 100,000 hotel rooms across the US and Europe, including La Quinta Inn and Suites and LXR Luxury Resorts and Hotels. Along with Hilton's eponymous line, the acquisition will give Blackstone control of subsidiary brands including Conrad, Embassy Suites and The Waldorf-Astoria Collection. Bear Stearns, Bank of America, Deutsche Bank, Goldman Sachs and Morgan Stanley will underwrite the investment.

The Carlyle Group and Onex Corporation have struck a deal to buy automotive equipment manufacturer Allison Transmission from General Motors for $5.6 billion (€4.2 billion). The deal is part of GE's long term plan to improve its liquidity by selling off assets and cutting fixed costs, which led the company to sell 51 percent of its former lending unit, GMAC, to Cerberus and Citibank last year. Carlyle and Onex will split the equity investment when the deal closes.

Cerberus Capital Management has entered into an agreement to buy equipment rental company United Rentals for $6.6 billion (€4.8 billion). The deal is the largest ever in the equipment rental sector, which has long been a popular destination for private equity capital. The deal includes the assumption of $2.6 billion in debt in addition to $34.50 per share for all of United Rentals' outstanding stock. Bank of America, Credit Suisse, Morgan Stanley and Lehman Brothers will provide debt financing for the deal.

US chemical manufacturer Huntsman has terminated its merger agreement with Russian billionaire Len Blavatnik's Access Industrial Holdings and accepted Apollo Management's $10.6 billion (€7.7 billion) bid. The deal includes the acquisition of all Huntsman's outstanding shares for $28 each in cash, as well as the assumption of $3.7 billion in debt. The bid is $2 per share more than Access's June 26 offer.