PE Week Wire: Friday, November 28, 2008

I wasn’t planning to send out a Wire today, but then I realized that I’m a workaholic and there are probably other workaholics out there. Or perhaps better-adjusted people who are checking their email for non-work related items. Or perhaps folks waiting in line at the Best Buy, checking their Blackberries after a morning of getting trampled by bargain-hunters (you are the worst-adjusted of all). So, without further ado:

*** All private equity eyes are on Canada right now, where the C$52 billion buyout of BCE Corp. seems to be on life support. Something about how KPMG doesn’t believe BCE could possibly remain solvent after taking on tens of billions of dollars in new debt. Seems like somebody got religion…

BCE is the final act of Buyout Binge ’07, which will be recorded either as a tragedy or as a black comedy. The deciding factor will be how hard the equity sponsors work to kill it. I know that some of them still believe in the investment thesis, but can only conclude that’s because they are blinded by personal investment. Not financial investment, mind you, but the more than 18 months of time spent working toward that closing dinner. From a dollars and sense perspective, this deal stopped making sense long ago…

For context, let’s take a quick look at Clear Channel – another mega-buyout that closed long after the credit crisis became apparent (albeit before Lehman collapsed). Moreover, it was a deal in which the equity sponsors – Bain Capital and THL Capital – seemed determine to close, despite the many reasons not to do so.

Bain Capital told investors earlier this week that it has already written down its Clear Channel equity value by 15 percent. That may have been a bit aggressive, but also means that many people inside Bain and fellow equity sponsor THL Capital are already feeling the pangs of timing regret. Sure they got favorable renegotiation of the financing package, but the pair also (quietly) bought more than $2 billion in Clear Channel senior debt (it was a leveraged purchase, but still…).

Sure Clear Channel and BCE are different businesses, but their buyout deals share similarly inflated equity values and massive leverage burdens. These are the types of transactions that won’t be agreed to again for years, and BCE’s equity sponsors should think long and hard about why. If this deal can only be salvaged by hard work, it’s time to take a vacation. Perhaps it would hurt a bit today, but it would hurt far more tomorrow.

*** Hudson Clean Energy Partners, a private equity firm formed last year by alternative energy bankers from Goldman Sachs,has been hit with a lawsuit by UK-based wind power giant Renewable Energy Systems Ltd. The complaint was filed in New Jersey District Court, and includes allegations of trade secret misappropriation and inducing, aiding and assisting breach of fiduciary duty.

At issue is Hudson’s July hiring of Mike O’Neill, who had been second-in-command at RES and a director on the company’s board. According to the complaint:

“For several months before O’Neill gave notice to RES, he was actually serving in part as Hudson’s top-level “inside man” within RES, helping Hudson develop its competitive venture, working on numerous business planning and other documents for Hudson, and inevitably providing to Hudson the benefit of RES’ proprietary, trade secret and confidential information. If RES had not discovered that O’Neill was secretly helping Hudson to develop its competitive venture while remaining in the employ of RES, and thereafter commenced an investigation, it is unknown for how much longer Hudson would have continued to use him in this manner.”

Hudson has denied all of RES’ claims in a subsequent legal reply, adding that RES has suffered no damages and that the O’Neill hiring breached neither contract nor fiduciary duty.

For much more – including the actual complaint and Hudson response, go here.

Top Three

Reliant Energy (NYSE: RRI) said that it will not proceed with a $1 billion capital infusion, which was to have included a $650 million term loan from GS Loan Partners and a $350 million convertible preferred stock purchase by First Reserve Corp.

Arcapita has decided not to sell Irish electric company Viridian, after prospective buyers struggled to raise sufficient financing. Dresdner Kleinwort had been managing the process.

Maurice Tchenio reportedly has filed suit in London against Apax Partners, claiming that the firm owes him an undisclosed amount of carried interest and management fees, related to five European investments made since 2001. Tchenio is an Apax co-founder and chairman of its French affiliate.

VC Deals, a Chinese developer of online video software, has raised $15 million in VC funding from Matrix Partners China and IDG.

DotNetNuke, a Seattle-based developer of an open-source application framework for the Microsoft tech platform, has raised an undisclosed amount of Series A funding from August Capital and Sierra Ventures.

StillSecure, a Superior, Colo.–based provider of secure network infrastructure solutions, has raised $5 million in venture debt funding from Silicon Valley Bank. It previously raised VC funding from firms like 3i Group, Meritage Private Equity Funds and Mobius Venture Capital.

Buyout Deals

The Carlyle Group has agreed to invest $50 million into China’s Hao Yue Education Group.

PE Exits

ETIRC Aviation of Luxembourg has offered to buy bankrupt private jet maker Eclipse Aviation Corp., according to court documents located by VentureWire. The deal would include $28 million in cash, $160 million in secured financing and a 15% stake in the ETIRC holding company set up to make the purchase. ETIRC also would agree to invest $150 million in new equity, including the aforementioned $28 million. ETIRC already holds around a 65% stake in Eclipse, while the company has also raised over $230 million of ! private equity funding from firms like Equitek Capital, New Mexico State Investment Council and Sun Mountain Capital.

Firms & Funds

ING has cut the size of its leveraged finance team in Asia.

Tembusu Partners, a Singapore-based private equity firm, is forming a $100 million fund in partnership with the government of Nanjing, China. The vehicle will be used to invest in companies based and/or operating in the Yangtze Delta region.

Human Resources

Sweta Chattopadhyay and Tim Tyshing have joined the private equity group of USS, Britain’s second-largest pension fund, as analysts. Chattopadhyay will focus on direct investment and co-investment, and previously was with ABN Amro. Tyshing will focus on private equity and infrastructure fund investment, and previously was with ANZ Banking Group.

Luigi Pettinicchio and Luis Quiroga have joined HgCapital as associates focused on the renewable energy sector. Pettinicchio previously was with Goldman Sachs while Quiroga previously was with Credit Suisse.