Jon Moulton of Alchemy warned us earlier of a mortgage famine - Citigroup put a possible value on Northern Wreck shares of 6p.
After an interesting day in the City , Tom Rayner of Citigroup tells us he has cut his target price for Northern Wreck's shares to 150p although he thinks 220p a share if a buyer emerged, but thinks this is unlikely. Wound-down in an orderly fashion, investors could get around 130p a share, he calculates.
Worst-case - savers withdraw all their deposits - Northern relies on the Bank of England for expensive emergency funding on a long-term basis, the shares would be worth just 6p - £25 Mn for the whole company. ...which the FSA said last week was solvent. Ho.Ho.Ho.
"An aggressive assumption, highly unlikely to play out," he laughs," but we believe it provides a useful base valuation," he said and put the phone down
So it was useful to listen to Peter Day's "In Business" which included discussion with Jon Moulton and his previous warnings about parcelling debts, collateralised loan obligations CLO's , bubbles, etc., ... It can be heard again here (best with Real Player) for 7 days or repeated on Radio 4 on Sunday 9.30-10.00pm .
Alchemy head warns of grim times , Martin Arnold ,Financial Times 25th August 2007
Published: August 25 2007
Jon Moulton, the British private equity veteran, has warned that the buy-out industry is heading for a dramatic drop in the returns it generates for investors as the credit crunch hits the value of companies acquired at the top of the market.
The boss of Alchemy Partners, a mid-market buy-out and distressed debt investor, predicted that large private equity firms would need to write down the value of the companies they own and consider selling subsidiaries to raise cash.
The outspoken buy-out boss also forecast an increase in debt-for-equity swaps by companies acquired with high levels of debt that are unable to refinance their loans, forcing them to hand over ownership to creditors.
“There are companies out there that I would be personally willing to take 10-to-one odds on them needing debt-for-equity swaps, because they are over-levered to any reasonable base and cannot possibly be refinanced,” he told the Financial Times.
He said that “in many cases” this trend would be “precipitated if a company needs more cash”.
“The large private equity funds have been booking very large stated rates of return for a long time and they are now going to have unrealised write-downs.”
Predicting a long grim period for buy-out firms, Mr Moulton said the UK seemed on the brink of a “mortgage famine” that could erode house prices, eat into consumer confidence and hurt economic growth.
“A mortgage famine is, I think, one of the most likely events. It will have an impact on the economy. It will hit house prices, and they are such an important factor in consumer psychology that it will feed through into the economy.”
Mr Moulton owns stakes in several mortgage and loan companies, including mortgage broker John Charcol, Swift Advances, the consumer loan and mortgage business, and Everyday Loans, the subprime lender.
Mr Moulton said his distressed debt team was “working long, hard hours”.
He said about €4bn ($5.5bn) of leveraged loans had been refinanced in the second quarter that would not have been completed in current market conditions.
“This gives you some idea of the magnitude. It doesn’t mean there is a €4bn write-off, it means that €4bn could probably be replaced with €3bn, not €4bn,” he said.
“That number will go up now every quarter, because of the growth that occurred years back in those highly leveraged loans. So it is a big market coming.”
This is what he said in the Independent in October last year .
"Dicing with the debt meister", by Maggie Lee 29/10/06
"Jon Moulton, founder and managing partner of the private-equity firm Alchemy, has never shied from speaking his mind. "We're looking at an overheated market right now," he says, "and we'll see some spectacular falls in the next year or two. It's just a matter of time."