The Chapter 11 bankruptcy filing of Chrysler LLC will likely wash out any investment Cerberus Capital Management LP had in the carmaker, but how does the loss stack up against some of the other huge private equity investments that also ended in disaster?
Over the last decade, there have been a series of notable blowups including TPG's ill-timed foray into banking with Washington Mutual Inc. and Sam Zell's adventures in publishing, but even beyond those recent examples there are still plenty of other bad bets that stack up quite well with Chrysler.
Company |
PE Sponsors |
Sponsor's loss
($bill.) |
| Chrysler LLC |
Cerberus Capital-led consortium |
N/A
|
| XO Communications |
Forstmann Little |
$1.5 |
| German cable networks Ish and Kabel Baden-Württemberg |
Callahan Associates International, Banc of America Equity Partners, Blackstone Group LP, Caisse de Dépôt et Placement du Québec and others |
1.5 |
| Washington Mutual |
TPG Capital-led consortium |
1.35 |
| Charter Communications |
Vulcan Ventures |
N/A |
| McLeodUSA |
Forstmann Little |
1.175 |
| Regal Cinemas |
KKR, Hicks Muse, DLJ Merchant Banking |
1.05 |
|
WaMu
Of all the deals to fall off the cliff, TPG's WaMu investment went sour the fastest. The private equity firm led a $7 billion equity injection (The Deal Pipeline subscribers see story) into the struggling bank in April 2008, only to watch the Federal Deposit Insurance Co. seize the bank five months later as it failed. The government sold the assets to J.P. Morgan Chase & Co. (NYSE:JPM) for $1.9 billion, wiping out $1.3 billion of TPG's outlay. Days later, the holding company filed for bankruptcy.
Tribune
As the lending bubble reached its zenith, billionaire investor Sam Zell took it on himself to save his hometown paper, owned by Tribune Co., declaring that "[newspapers] ain't ended, and they're not gonna end," as he took the company private in late 2007. However, his novel deal structure of a $8.2 billion employee share owner privatization quickly morphed into "the transaction from hell," as he put it; that eventually landed the publisher in Chapter 11 less than a year after the deal closed (The Deal Pipeline subscribers see story). Zell losses weren't as rough as other firm's though, as he only invested $315 million -- the rest of the purchase was in debt.
Charter
Zell isn't the only mogul who lost a bet on media. Paul Allen, who made his fortune as a Microsoft Corp. (NASDAQ:MSFT) co-founder with Bill Gates, had invested some of his cash in Charter Communications Inc. through his Vulcan Ventures Inc. The St. Louis cable operator entered into Chapter 11 in March (The Deal Pipeline subscribers see story), dealing a significant blow to the value of the stake held by board chairman Allen, who paid $2.8 billion for a controlling stake in the company back in 1998. However, Allen had plowed plenty more into Charter over the next few years, as his personal investment in the company had grown to $7.3 billion by early 2003 (The Deal Pipeline subscribers see story). Prior to the bankruptcy filing, Allen had a 51.7% stake in Charter, but controlled 91% of the voting power.
XO
But for some of the most painful wipeouts for LBO shops, you have to go back to the wreckage of the last recession with Forstmann Little & Co.'s decision to bet $2.5 billion on telecoms XO Communications and McLeodUSA Inc. in 1999 and 2000 (The Deal Pipeline subscribers see story). The two portfolio companies ended up costing the firm more than 60% of its committed capital, after the buyout shop continued to double down on the companies, injecting more and more capital as they faltered, with XO costing Forstmann Little $1.5 billion (The Deal Pipeline subscribers see story) and McLeodUSA $1.1 billion (The Deal Pipeline subscribers see story). The bankruptcies ultimately led some of the firm's limited partners to file suit over the investments.
Hopefully, Cerberus won't face the same fate over its Chrysler investment. - George White
See Dealwatch on PE-back bankruptcies
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I am sure Cerberus took out a ton of fees, much of them at closing. Is there a liklihood of fraudulent conveyance lawsuit?