Blackstone Opens Europe Spigot As Distressed Deals Surge

Europe’s tentative recovery spreads south in September

The Stoxx Europe 600 Index fell 0.7 percent to 309.89 this past week, after declining 0.6 percent in the previous five days. The gauge has still climbed 11 percent in 2013 as the euro area emerged from a recession and central banks maintained stimulus measures to support the global economy. The U.S. shutdown is a comment on the dysfunctional ways of U.S. politics, Andrew Parry, who oversees about 2 billion euros ($2.7 billion) at Hermes Sourcecap Ltd. in London , said in a phone interview. We came out of the summer months too optimistic about Europe, so some pause for breath was needed. We saw the profit warning from Nokian Renkaat and the numbers from Unilever. I think well continue to get more profit warnings going into the earnings season. The U.S. government began a partial shutdown on Oct. 1 after Democrats and Republicans failed to agree on a budget, closing some services and placing as many as 800,000 federal employees on unpaid leave. A two-week halt could shave 0.25 percentage point off fourth-quarter economic growth, Federal Reserve Bank of San Francisco President John Williams forecast. Debt Limit In addition to passing a budget, Congress must authorize an increase to the $16.7 trillion debt ceiling this month to avoid a default.

Overall, the surveys painted a slightly brighter picture than the “weak, fragile and uneven” recovery alluded to on Wednesday by European Central Bank president Mario Draghi. On balance, they also boded well for the global economy. Indexes from China showed growth picking up there, even if data due later from the U.S. are expected to show a slight easing in the expansion for non-manufacturing companies, which have consistently outpaced their European peers. The main disappointment in Europe was Spain, where a rise in business activity during August – the first in more than two years – proved short-lived as firms slipped back into decline. Still, the data pointed to a broadening recovery across the euro zone, said Nick Matthews, senior European economist at Nomura, though that had yet to be borne out in official data. “The hard data so far for the third quarter has perhaps a bit more on the disappointing side – in particular industrial production …was very weak in July,” said Matthews. “We expect this to bounce back, but this suggests we could see a slightly slower pace of growth in the third quarter relative to the second quarter.” PMI compiler Markit said its surveys suggested the euro zone economy grew around 0.2 percent from July through September, a touch below the 0.3 percent registered in the second quarter. Nomura’s Matthews said they suggested a slightly stronger rate of growth for the final months of the year. STILL NOT ON SOLID GROUND Markit’s Eurozone Services PMI rose to 52.2 in September from August’s 50.7, little changed from a preliminary reading of 52.1. Readings above 50 signify growth. Businesses in No.1 economy Germany reported rising new orders and staffing levels, while France’s private sector grew for the first time in a year and a half. The upbeat mood was further bolstered by news that euro zone retail sales jumped 0.7 percent in August, month-on-month, hitting the top end of forecasts. Draghi said on Wednesday the euro zone economy still faced downside risks [ID:nL6N0HS2YP].

The majority of sales have been distressed loans, Thompson said. Investment Returns Most of the portfolios of nonperforming commercial real estate loans sold by banks last year were priced at 40 percent to 50 percent of par value, according to PwC. Richard Furst, Avenue Capitals chief investment officer, said that prices for corporate loans after theyve defaulted range from 30 percent to 70 percent of par. By buying bank loans at such discounts, Avenue can take over European companies at valuations of three to five times earnings before interest, taxes, depreciation and amortization, a common yardstick for valuing acquisitions, Furst said. Such prices can give rise to annual investment returns of 20 percent or more, he said. The average multiple for private-equity deals involving a U.S. target was 9.4 over the past 12 months, according to data compiled by Bloomberg. Lloyds agreed last month to sell a group of European commercial real estate loans to Cerberus Capital Management LP for about 263 million pounds ($427 million). In July, Dallas-based Lone Star Funds agreed to buy about 1.3 billion pounds of nonperforming U.K. property loans from Commerzbank. Half Trillion UBS AG (UBSN) , the Zurich-based bank exiting some businesses to bolster capital, is seeking buyers for about $800 million of distressed corporate debt, two people with knowledge of the matter said this week.

‘Incomprehension’: Europe flummoxed by US government shutdown

Just today Italy is yet again on the brink, facing its own political collapse. The Christian Science Monitor Weekly Digital Edition But it is with incomprehension that Europe views the US this week, after a congressional dispute over President Obama’s healthcare plan led to a US government shutdown. So far European markets have reacted calmly to America’s political gridlock. And the shutdown has little direct impact on specific transatlantic relations. But it does add to a sense in Europe that the US is bogged down and focused elsewhere, even as discontent over governance is equallydiscernible on both sides of the Atlantic. RECOMMENDED: Think you know Europe? Take our geography quiz. It fuels an already confused debate when it comes to the future of transatlantic relations, says Ian Lesser, senior director for foreign and security policy at the German Marshall Fund of the United States in Brussels. Europe is already worried that the US is pivoting to Asia, and what this would mean for European strategic interests…. [The shutdown] will also reinforce existing European anxieties about a more inward-looking, less activist US. The Obama administration has acknowledged the global impact of the shutdown. It does have an effect on our relationships around the world and it cuts straight to the obvious question: can you rely on the United States as a reliable partner to fulfill its commitments to its allies? Defense Secretary Chuck Hagel said to reporters this week. It does cast a very significant pall over America’s credibility to our allies when this kind of thing happens. A loss of confidence in the US? While a long-term shutdown would impact the global economy and thus Europe, it doesn’t directly mar transatlantic policies, such as the trade agreement negotiations that are underway. But it is the expression of a deeper problem of failed checks and balances that will impact American ties with Europe, says Josef Braml, a transatlantic expert at the German Council on Foreign Relations in Berlin. If the superpower has no room to maneuver, it will have to shift burdens to foes and friends, he says, which will then create a wedge.