Back in January 2005, Blackstone and CDP Capital partners scooped back
on the order of 75% of the funds they loaned to their portfolio firm,
Kabal Baden-Wurttemberg, then Germany's third largest cable firm, via a
Morgan Stanley, J.P. Morgan and Citigroup sponsored public offering of
€170 million in debt with a coupon rate at the time of 9.504%. It was
7.36% over the 3 month Euribor rate which was 2.144% at the time.
(You can find great historical Euribor figures on Euribor.org).
They also laid bank loans of around €670 million on the firm. All this meant that senior debt was used to cash out around €320 million in subordinated shareholder loans (by KKR and CDP) and that the Debt:EBITDA ratio was pushed to in excess of 6:1). To put this in perspective it is a triple C rating in Europe, the default rate of which is on the order of 33%. There is an interesting article on this in the Journal (subscription required).
Back then Blackstone held around 60% of KBW, CDP had tagged along on the deal for the remaining 40%.
Years before, in June of 2000, Blackstone arranged the acquisition of a majority stake (55%) in KBW structured with a Luxembourg entity (Callahan InvestCo Germany 1 S.A.R.L.) that was, in turn, owned by Callahan Associates International LLC and individual investment vehicles of the participating private equity funds. Deutsche Telekom AG, the original state owned owner, held the rest. There was also the structural involvement of Barbarossa 1 GmbH (setting aside for a moment the wisdom of naming a German acquisition vehicle "Barbarossa") that we will ignore for the moment.
Remembering that a major crash in telecom had badly depressed the European telecom industry, it is illustrative to note that almost all the major players in cable in Germany (and, indeed, Europe) are presently held at least in part by U.S. private equity firms.
To give a comparison, Goldman Sachs Capital Partners along with Apax and Providence originally tossed €663 million into Kabel Deutschland (Germany's largest) back in 2003 and had collected €1.58 billion in special dividends as of February 2005. Quick analysis: IRR of 56.97% before the value of their equity stake is calculated. (Though this assumes the dividends were a lump sum in February, and they probably were not).
Special dividends in action, again.
Today, the Journal is reporting (subscription required) that Blackstone has agreed to sell KBW to clear the way to acquire 4.5% of Deutsche Telekom (a competitor to KBW that probably would have caused antitrust issues for Blackstone). I would love to get a hint at the terms and figure out what Blackstone's returns are. On top of the 75% recapture of their loans to the unit, I suspect they've done quite well.
It is interesting, again, from a risk shifting perspective. What was Blackstone's real exposure to loss after the public debt issuances?
