peHUB Wire: Thursday, March 11, 2010

***Centerbridge Partners is one of those private equity firms that takes the “private” part just as seriously as the “equity” part. The New York firm’s partners rarely comment in the media, and even Centerbridge’s website is password protected. The radio silence is likely related to the volatile nature of Centerbridge’s deals. The distressed debt-buyout hybrid fund has become embroiled in some contentious bankruptcy proceedings, including last year’s CIT drama.

But Centerbridge is in the market with its second fund, and nothing draws a buyout pro out of media exile like fundraising. Yesterday Jeffrey Aronson, a founding partner, pulled back the curtain at the DBR Restructuring & Turnaround Summit in New York, discussing a “W-shaped” default cycle, sour grapes over CIT and long hold times.

Here are some highlights:

• Aronson believes this default cycle will have a long tail. Buyouts firms were able to refinance much of their debt last year, but not all of the half-trillion dollars of LBO debt maturing between 2011 and 2015 will be repaid. Centerbridge is expecting the default rate to look like a “W,” meaning after the early 2009 spike and second-half decline, defaults will rise again, possibly to an even higher level.

• The “Golden Age” for distressed investing has passed for coattail riders, but not for disciplined, experienced investors, he said. “Last year anyone could have bought something, all you needed was some courage,” he said. “That’s not the case today, but that doesn’t mean there’s nothing to do.” Good distressed plays are harder to find, and the easy money is over, he said.

• Centerbridge is interested in businesses that are in a cyclical decline, but not a secular decline. Apparently that means Centerbridge believes auto parts is not experiencing secular decline, since the firm owns a stake in Dana Corp.

• The firm believes it’s differentiated because its founding partners matched their backgrounds in distressed debt (Angelo Gordon) and operational private equity (Blackstone Group). The firm has a sophisticated understanding of markets and trading, which foreign to traditional buyout firms, Aronson said. For that reason, Centerbridge stays invested in its companies longer than most distressed debt investors. That’s true with CIT, where the firm plans to remain an investor for some time, Aro! nson said.

• Centerbridge is the four largest equity holder in CIT, and it hasn’t sold any of its stock since the restructuring was completed. He said that even though some bondholders had “sour grapes” over the deal’s pricing, the key to Centerbridge was not the pricing as much as it was attractive covenants placing Centerbridge in the driver’s seat through CIT’s restructuring.

Centerbridge had gathered $467 million toward its second fund as of last July. The vehicle has no set target, according to an SEC filing, but it follows a $3.2 billion debut fund, raised in 2006. Park Hill is its placement agent.

***Steve Rattner also spoke at the conference about his experience as President Obama’s car czar. He naturally shot down my series of questions on Quadrangle, Loglisci, and the pay-to-play scandal. He also didn’t give any hints as to his future plans (he’s currently enjoying funemployment, it seems). As Dan reported yesterday, Rattner and Quadrangle are still under investigation by Andrew Cuomo for involvement in the scandal that never dies. You can read about that and David Loglisci’s guilty plea here

Top Three, a Washington, D.C.-based social discovery and cataloging network, has raised $25 million in Series B funding. U.S. Venture Partners led the round, and was joined by return backers Grotech Ventures and Steve Case’s Revolution LLC. The company previously raised a $5 million Series A round.

CA Inc. has agreed to acquire Nimsoft, a Redwood City, Calif.-based provider of IT service-level management solutions, for $350 million in cash. NimSoft had raised $22.3 million over two rounds of VC funding, from Goldman Sachs, JMI Equity and Northzone Ventures.

Michael Capellas has stepped down as CEO of First Data Corp., in order to become a tech-focused senior advisor at KKR. First Data board member Joe Forehand, former chairman and CEO of Accenture, will take over as chairman and interim CEO. First Data is a KKR portfolio company.

VC Deals

Advanced Micro-Fabrication Equipment Inc., a Shanghai-based developer of plasma etching and chemical vapor deposition equipment for use in semiconductor fabs, has raised $46 million in Series D funding.

Eyeblaster Inc., a New York-based provider of digital marketing services and technology, has filed for a $115 million IPO. J.P. Morgan and Deutsche Bank serving as co-lead underwriters. Eyeblaster has raised around $38 million in VC funding. Shareholders include Sycamore Technology Ventures (33.9% pre-IPO stake), Insight Venture Partners (22.6%) and Eli Barkat (managing director of BRM Capital).

Apprion, a Moffett Field, Calif.-based provider of application network systems designed for the process manufacturing industry, has raised $8 million in Series C funding. Return backers included Allegis Capital, Motorola Ventures, CTTV Investments and Anvil Investment Associates. The company previously raised around $23.5 million.

ZafGen Inc., a Cambridge, Mass.-based developer of an obesity therapy based on the vascular targeting of adipose tissue, has secured $8.1 million of a $10.13 million funding round, according to a regulatory filing. The company previously raised over $17 million from Atlas Venture, Third Rock Ventures and GreatPoint Ventures.

Veryan Holdings Ltd., a UK-based developer of vasculat stent technology, has raised £3.6 million in new VC funding. Seroba Kernal led the round, and was joined by return backers Imperial Innovations, Oxford Capital Partners and NESTA.

Advanced Micro-Fabrication Equipment Inc., a Shanghai-based developer of plasma etching and chemical vapor deposition equipment for use in semiconductor fabs, has raised $46 million in Series D funding. Shanghai Venture Capital Co. Ltd. and Shanghai Pudong Science & Technology Investment Co. were joined by return backers Walden International, Lightspeed Venture Partners, Goldman Sachs, Redpoint Ventures, Global Catalyst Partners, Interwest Partners, Bay Partners, QUALCOMM Ventures and KT Venture Group.

Buyouts Deals

Nelson Peltz, owner of U.S. restaurant chain Wendy’s/Arby’s Group Inc., is considering a bid for CKE Restaurants Inc, the New York Post reported.

Psychiatric Solutions Inc., a mental health facilities operator, said it hired Goldman Sachs as its financial adviser after being approached by third parties about a possible acquisition of the company. Bain Capital was reported to be in talks with the company previously.

Cerberus Capital Management entered into a financing deal with GeoEye Inc, in a move that would help the satellite imagery company win a federal contract.

Moelis Capital Partners and Virginia Capital Partners have backed Kinsale Capital Group and its launch of Kinsale Insurance Company Inc., a Richmond, Va.-based specialty insurance operation.

Oaktree Capital Partners is preparing to take over Almatis, an alumina company based in Frankfurt, from Dubai International Capital in a debt for equity exchange worth $1 billion, Bloomberg reported. The plan will cut the company’s debt to $420 million.

Leading Ridge Capital Partners has acquired Damage Recovery Systems Inc., a provider of returned goods management services and supply chain analysis for food and consumer packaged goods manufacturers. No financial terms were disclosed.

Lineage Capital has sponsored a majoroity recapitalization of Bioreclamation Inc., a Westbury, N.Y.-based maker of control matrix material used by biotech and pharma companies in preclinical and clinical development. No financial terms were dislcosed. Mufson Howe Hunter & Co. advised Bioreclamation on the deal.

PE Exits

Regence BlueShield of Washington has acquired the assets of Kinetix Living Corp., a Seattle-based provider of customized health and nutrition programs to corporate clients and individuals. No financial terms were disclosed. Kinetix had been a portfolio company of Maveron LLC.

PE-Backed IPOs

Eyeblaster Inc., a New York-based provider of digital marketing services and technology, has filed for a $115 million IPO. J.P. Morgan and Deutsche Bank serving as co-lead underwriters. The company first filed for a $115 million IPO in March 2008, but withdrew registration that December.

Sensata Technologies Holding priced shares in its initial public offering at the bottom of the expected range on Wednesday. The company sold 31.6 million shares for $18 each, raising about $568.8 million. It had planned to sell 31.6 million shares for $18 to $20 each.

Firms & Funds

Battery Ventures has closed its ninth fund with $750 million in capital commitments.

Human Resources

Robert Hyer joined Houlihan Lokey from Greenhill & Co to head a new practice focusing on companies in the financial technology industry. Hyer, a 23-year investment banking veteran, will be joined by Bruce Urbanek, a financial technology specialist formerly with Goldman Sachs and Citigroup.

Jaime Johnson has joined Hirtle Callaghan & Co. as director of private equity. He previously was a managing director with Paul Capital and, before that, spent six years with Alta Advisers.

Adriana Peterson has joined Burrill & Co. as managing director of human resources. She previously ran executive search firm NEXUSBioMed.

Michael Rabson has rejoined Wilson Sonsini Goodrich & Rosati as a Palo Alto-based partner, focused on life sciences clients. He previously served as general counsel and senior vice president at Cytokinetics.

Harris Williams & Co. has added two senior professionals to its Richmond office. Douglas Yablonski joined the firm as a Managing Director and Patrick McNulty as a Director.

Johan Brenner has joined Swedish venture capital firm Creandum. He previously spent four years as a partner with Baldterton Capital.