Jun 5, 2019

Axios Pro Rata

Top of the Morning

Illustration: Rebecca Zisser/Axios

America's top leveraged loans banker is joining the concern chorus over high levels of corporate debt.

  • Brian Moynihan is CEO of Bank of America Merrill Lynch, regularly the country's top book-runner and lead arranger for leveraged loans, with 2018 market share of 10.8% and 9.8%, respectively. In fact, it's led those categories since Moynihan took the reigns in 2010.
  • Yesterday he told the Economic Club of New York that increases in leveraged lending, particularly at riskier terms, threatens to undermine the broader markets.
  • Moynihan, via Bloomberg: "We don’t see anything yet because the economy’s good, the companies are making money. The issue that’s there is in the leveraged finance... It’ll be ugly for those companies if the economy slows down and they can’t carry the debt and then restructure it, and then the usual carnage goes on."

Bottom line: Moynihan's big fear is that leveraged loans could become an economic recession's accelerant, rather than its initial spark. Defenders point to the financial crisis, where leveraged lenders prevented a default tidal wave by letting issuers "amend and extend" — theoretically proving that the asset class doesn't present systemic risk.

  • One big difference between then and now is volume. The U.S. leveraged loan load is now over $1 trillion, whereas it previously topped out in 2008 at around $600 billion. It remains to be seen if corporate revenue and cash increases over that same period can ingest the difference, were the economy to significantly slow.

Crypto conflict: The SEC yesterday filed suit against chat app maker Kik, over its $100 million digital token sale in 2017.

  • Regulators say Kik should have filed the tokens as securities. Kik argues they were currency, given that the tokens buy and sell digital goods.
  • After reading through the SEC's complaint, Kia sent me one word: "Scathing."
  • Crypto expert and attorney Katherine Wu pulled out her highlighter and published an annotated version.
  • As we discussed last week, the outcome could provide greater clarity for the broader crypto space. Go deeper.

Dead deals: The rate of abandoned M&A has not risen in 2019, despite how it may feel.

  • Already this week we've seen a number of large transactions killed off, like EQT bailing on Vocus and Non-Standard Finance ending its pursuit of Provident Financial. Plus, there are reports that Mexican antitrust regulators disapprove of Wal-Mart's proposed purchase of grocery delivery platform Cornershop.
  • So far this year there have been 439 global deals pulled, valued at nearly $187 billion. At this same time in 2018, the numbers were 484 deals valued at $376 billion.
  • That's around a 50% drop in dollar volume, whereas announced year-to-date global M&A is off around 21%. In other words, the lower kill rate isn't a proportionate function of fewer births.
  • 2019 has the lowest year-to-date volume, in terms of dollars, since 2013. In terms of deal number, that 2018 figure represented an eight-year high.

Trade wars: The 2020 presidential race could, in part, become a referendum on free global trade vs. protectionism. At least that's the plan of President Trump's reelection campaign, according to a new report from Axios' Jonathan Swan:

Trump allies say that when 2020 candidates to Biden’s left inevitably start hitting him on his free-trade past, Republicans will piggyback to try to undermine him ahead of a potential general election fight in the Rust Belt.

🎧 Pro Rata Podcast talks with Jason Thomas, head of research at The Carlyle Group, who argues in a new paper that financial capital has become infinite whereas human capital remains finite — a dichotomy that has relevance for investors as a recession nears. Listen here.


Source: Giphy

The San Francisco Public Utilities Commission hired Jefferies to explore a bid for the local distribution assets of PG&E (NYSE: PGC).

  • Why it's the BFD: Because it would be San Francisco betting that a long and costly process would ultimately pay off in the form of more stable and transparent rates for customers, modeling itself after a government-run utility scheme currently employed in Los Angeles.
  • Pricing: SFPUC previously estimated that the assets would cost “in the neighborhood of a few billion dollars.”
  • Bottom line: PG&E entered Chapter 11 bankruptcy protection in January, due to more than $30 billion in liabilities related to The Camp Fire.
Venture Capital Deals

SentinelOne, a Palo Alto, Calif.-based provider of endpoint security solutions, raised $120 million in Series D funding. Insight Partners led, and was joined by Samsung, NextEquity and return backers Sound Ventures, Redpoint Ventures, Third Point Ventures, Data Collective, Granite Hill Capital Partners, Westly Group and SineWave Ventures. http://axios.link/zUh9

🚑 EpimAb Therapeutics, a Shanghai-based developer of bi-specific antibodies, raised $74 million in Series B funding. SDIC Fund, Sherpa Healthcare Partners and SCVC were joined by return backers 3E Bioventure Capital, Decheng Capital, Oriza Seed Capital and the Trend Investment Group. http://axios.link/Jvwx

Biz2Credit, a New York-based online lending platform for SMBs, raised $52 million in Series B funding led by WestBridge Capital. http://axios.link/7mZU

NoBroker, an Indian apartment purchase and rental platform, raised $51 million in Series C funding. General Atlantic led, and was joined by return backers SAIF Partners and BeeNext. http://axios.link/UmTI

Matillion, a provider of cloud data integration tools, raised $35 million in Series C funding. Battery Ventures led, and was joined by return backers Sapphire Ventures and Scale Venture Partners. http://axios.link/CXcn

TrueLayer, a London-based open banking startup, raised $35 million from Tencent and Temasek. http://axios.link/tTcK

Carbon Lighthouse, a San Francisco-based provider of energy efficiency solutions for commercial buildings, raised $32.6 million led by Cox Enterprises. http://axios.link/v4uA

Getsafe, a German digital insurance startup aimed at millennials, raised €15 million in Series A funding. Earlybird led, and was joined by CommerzVentures. http://axios.link/T1yR

Troops, a New York-based CRM Slackbot for sales teams, raised $12 million in Series B funding. Aspect Ventures led, and was joined by Slack Fund, First Round Capital, Felicis Ventures, Susa Ventures, Chicago Ventures and Hone Capital. http://axios.link/odNj

Sheltr, a San Francisco-based home maintenance software platform, raised $3.2 million from backers like South Park Commons, MetaProp and NYCA Partners. http://axios.link/dy4P

Private Equity Deals

Advent International beat out Bain Capital in a buyout auction for Italian chemicals company Industria Chimica Emiliana, which is being valued at around €600 million, per Reuters. http://axios.link/YATE

Flexera, an Itasca, N.Y.-based IT services company, acquired RISC Networks, an Asheville, N.C.-based provider of analytics SaaS for companies migrating to the cloud. Flexera backers include TA Associates, Thoma Bravo, Ontario Teachers’ and American Capital. http://axios.link/Qq8i

Imperva, a Redwood Shores, Calif.-based cybersecurity portfolio company of Thoma Bravo, agreed to buy Distil Networks, an Arlington, Va.-based provider of bot management solutions that had raised over $60 million from firms like Bessemer Venture Partners, Triangle Peak Partners, MI Ventures, Foundry Group, TechStars, ff Venture Capital, IDEA Fund Partners and Correlation Ventures. http://axios.link/c6wO

Riviera Partners, a San Francisco-based executive search firm focused on tech hires, raised $25 million from Kayne Anderson Capital Advisors and ROCA Partners. http://axios.link/t6Zb

Warburg Pincus acquired Kestra Financial, an Austin, Texas-based independent advisor platform, from Stone Point Capital (which will retain a minority stake). www.kestrafinancial.com

Public Offerings

China East Education, a vocational training company in China, raised $625 million in a Hong Kong IPO, for what is believed to be the largest-ever float for an education company. http://axios.link/dE41

ESR Cayman, a logistics real estate developer backed by Warburg Pincus, plans to raise up to $1.24 billion in what would be Hong Kong’s largest IPO of 2019. http://axios.link/2w8u

Liquidity Events

Hahn & Co. is considering a full or partial sale of South Korean freight shipper H-Line Shipping, which could be valued at between $3.5 billion and $4 billion (including debt), per Bloomberg. http://axios.link/vk7Z

More M&A

Euronext said it secured 61.4% of the shares in Norwegian stock exchange Oslo Bors, giving it a takeover win over Nasdaq. http://axios.link/VPYA

Group Mach, a Canadian real estate developer, offered to buy Montreal-based travel tour operator Transat (TSX: TRZ) for around C$528 million, topping an earlier C$520 million bid from Air Canada (TSX: AC). http://axios.link/Hf1s

Mitsubishi Heavy Industries (Tokyo: 7011) is in talks to buy Bombardier’s (TSX: BBD) CRJ regional jet unit. http://axios.link/NZfw

Non-Standard Finance (LSE: NSF) dropped its £1.3 billion offer to buy rival UK subprime consumer lender Provident Financial (LSE: PFG). http://axios.link/XtOP


Digital Colony, a digital infrastructure-focused private equity firm affiliated with Tom Barrack’s Colony Capital, raised $4.05 billion for a new fund, per Reuters. http://axios.link/tWAw

Glenmont Partners of London closed its third clean energy-focused private equity fund with €850 million. http://axios.link/6rl2

Northleaf Capital Partners of Toronto raised C$300 million for its third Canada-focused VC fund-of-funds. www.northleafcapital.com

Rx3 Ventures, a consumer VC shop co-founded by quarterback Aaron Rogers, raised $50 million for its debut fund. http://axios.link/YSJQ

It's Personnel

JP Gan stepped down as managing partner of China/U.S. venture firm Qiming Venture Partners, and is likely to hang his own shingle, per DealStreetAsia. http://axios.link/OlHv

Nik Shah (ex-H.I.G. Capital) and Daniel Gedney (ex-Gauge Capital) have formed Cohere Capital, a Boston-based private equity firm focused on mid-market tech-enabled and healthcare services companies.

Final Numbers
Source: PwC Global Crisis Survey of 2,084 senior executives.

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