Friday, August 24, 2007

KKR Denies IPO Delay: Hmmm, Bad News

“As evidenced by the recent filing of an amendment to the registration statement, we are continuing to work on the IPO and have not postponed,” a spokesman for K.K.R., David Lilly said Thursday.

The filing had a notable change to it. It is the firm said "The cost of financing leveraged buyout transactions by issuing high-yield debt securities in the public capital markets has recently increased significantly. If conditions in the debt markets do not become more favorable to us in the near term, we may need to rely on financing commitments provided directly by investment banks or other sources in order to consummate pending transactions or finance future transactions."

"Such financing may be significantly more costly, with terms that may be significantly more restrictive, than financing that was, until recently, available to us in the public capital markets. More costly and restrictive financing may adversely impact the returns of our leveraged buyout transactions and, therefore, adversely affect our results of operations and financial condition." You can view the entire prospectus here

Translation? Business sucks right now and out results will reflect that.

Now both Blackstone (BX) down 28% and Fortress (FIG) down 43% went public earlier this year and buyers of shares of both have got creamed. Prior to the Blackstone IPO I posted that " If you believe in the "greater fool" theory then this would be an indication that these firm are at the top and the people in the know are cashing in." A few day later I wrote "Carl Ican, in an interview on CNBC yesterday said when asked about private equity "easy money and cheap deals are going away and this will severely impact earnings at private equity". When you add the specter of a tax increase from 15% to 35% on these entities, it is no wonder they are racing to cash in before we all realize they are due to earn much less in the immediate future."

In short, you would have to be a person of painfully little intellect to be waiting to invest in the KKR IPO (if it happens). I also cannot imagine I have a monopoly of this opinion either. That being said, what incentive does KKR have for hitting the trough now? Why not wait until at least Blackstone and Fortress are not dirty words to investors to make a run. One would think that when the current environment improves, any IPO would fetch much more money. Unless, unless, that is, things are only going to get worse.

What if KKR fully expects is tax rate to jump from 15% to 35% when congress gets back in session this fall? I would fully expect them to have someone's ear and probably have a good idea of what the anticipated outcome of it will be. If KKR pushes ahead now after what has happened to it's fellow PE buddies, it can only be becase they see things getting worse down the road.

Now I do not short stocks, I am not wired that way but if I did, the whole PE area looks to me like it may be a prime target.

blogger templates | Make Money Online