Tuesday, September 1, 2015

Archive: March, 2010

POSTED: Friday, March 26, 2010, 9:32 AM

Up in Boston, private equity giant Cerebrus Capital Management LP of New York (headed by truth-telling ex-Bush Treasury secretary John Snow, but best known for its disastrous Chrysler investment before the automaker's bankruptcy) has agreed to pay $830 million for six Catholic hospitals in the Caritas Christi network.

Presumably Cerebrus hopes to sell the hospitals at a fat return a few years off. The hospitals will now earn profits and pay taxes. Yet the church "will retain a stewardship role" and "the hospitals will remain Catholic," and still treat the poor, the hospitals say. The deal still requires church and state approval.

Where's the money going? Half for "capital expenditures" over the next four years, a quarter to shore up pensions (the system employs 12,000, making it about as large as Newtown Square-based Catholic Health East), the rest split between "immediate construction" and debt retirement. More from Boston Herald, Boston Globe, BusinessWeek, Wall St Journal

POSTED: Friday, March 26, 2010, 5:09 PM

“You’ll hear a lot of people talk about a looming crash. The crash has already occurred,” E. Todd Briddell, president of Bank of New York Mellon Corp.’s $3 billion asset Urdang commercial real estate arm in Plymouth Meeting, told me.

“It’s now an accounting problem.”

Office and warehouse construction may have ground to a halt. But “the market is starting to creep back up,” says Richard Ferst, Urdang’s newly promoted chief executive.

POSTED: Thursday, March 25, 2010, 11:22 AM

All that drilling is having an impact on the price of natural gas.

"We are lowering our 2010 composite spot natural gas price forecast to $4.75/million BTUs from $5.25," due mostly to the growing "domestic natural gas rig count, which is currently at 939 rigs, compared with a recent low of 665 rigs last July," writes Michael Schmitz, energy analyst at Boenning & Scattergood in West Conshohuocken.

Wells are shutting in Texas and other Western states; but drilling in, for example, the Marcellus Shale gasfields, which include northern and western Pennsylvania, has jumped to 77 rigs, vs. 23 rigs a year and a half ago as part of a national deep-drilling boom.

POSTED: Thursday, March 25, 2010, 10:06 AM

Philadelphia-based Securities and Exchange Commission lawyer Elaine Greenberg, a Bucks County resident, leads "the most ambitious... crackdown on regulatory abuses in the $2.8 trillion U.S. municipal bond market" in recent years, Bloomberg reporter Martin Z. Braun claims here.

"She’ll direct the SEC’s attention to states and cities as part of a focus on the tax-exempt market... In her sights are possible bid-rigging for municipal-investment contracts by banks including JPMorgan Chase & Co. and Bank of America Corp., public officials who hire advisers based on political contributions and local governments that fail to disclose their true financial condition..

"Greenberg was tapped in January to head the SEC’s municipal securities and public pensions unit, one of five task forces created after the global credit crisis and the SEC’s failure to detect Bernard Madoff’s $65 billion Ponzi scheme."

POSTED: Thursday, March 25, 2010, 5:39 PM

Veteran money manager and corporate turnaround specialist Charles “Ed” Haldeman of Haverford came out of retirement last summer to head money-losing, government-controlled home-loan finance giant Freddie Mac.
Since then, the company’s reported $12 billion in losses, bringing the three-year total to $75 billion, as it works its way through a long list of bad loans.

Treasury Secretary Timothy Geithner told Congress this week he’s still seeking advice on a plan to reorganize Freddie and its larger twin, Fannie Mae.

Geithner lamented the way Fannie’s and Freddie’s "duty to maximize profits" for investors had conflicted with their "public mission" to make homes affordable. But that doesn’t mean he’s for ending their investor-owned, private-company status, Haldeman told me.

“You could continue to have a profit-seeking enterprise,” with the government still guaranteeing mortgage-backed securities, in exchange for insurance fees, as it does with bank deposits.

What’s it like running a government-controlled company? “It’s a tough job,” he said. “There are a lot of constituencies.” He has to say No a lot. I'll write more on Haldeman’s prognosis for the U.S. home market in Sunday’s column.

POSTED: Wednesday, March 24, 2010, 11:45 AM

"2009 was the peak year" for Verizon FiOS and AT&T U-Verse, which will now grow more slowly in their competition with Comcast, TimeWarner and other cable TV companies, writes Bernstein Research analyst Craig Moffett in a report to clients today.

Verizon and AT&T added over 2 million TV subscibers last year, but the number of additional customers will drop  to "less than 1 million" by 2012. "Verizon will continue to build out in areas like New York City, Philadelphia, Washington DC and Pittsburgh that are already franchised but not yet fibered," wrote Moffett, but added that "Verizon is approaching the end of its FiOS expansion," he added, citing several statements by Verizon officials. 

By contrast, Comcast, which has lost TV customers steadily since at least 2008, and other cablers will see "a return to growth post-2012," and DirecTV and Dish Network will grow more slowly.

POSTED: Wednesday, March 24, 2010, 11:36 AM

Alloy Surfaces Co. Inc., part of UK-owned, Chester Township-based Chemring North America, says it's won a $13.9  million contract to make M211 missile decoys for U.S. Army aircraft at its plants in Chester and Bethel Townships, which employ 550 workers, Chemring vice president sales and marketing Mike Shoemaker said.

"We moved up there in 1998, with 79 people, from Delaware," Shoemaker told me. The company has since added two local plants. "Rep. (Curt) Weldon and Gov. Ridge made a very attractive package for us, and we've grown ever since."

That follows last year's $74 million Air Force and $9 million Navy contracts for the Alloy plants to build a million "special material decoys", eight-inch metal cans that shoot metal foil shards that heat up on contact with air and draw infrared-heat seeking missiles away from aircraft.

POSTED: Wednesday, March 24, 2010, 3:48 PM

(More on this story, including SERS' response, in Thursday's Philadelphia Inquirer here)

The Pennsylvania State Employees' Retirement System (PennSERS) tops a list of the most "risky" state employee pension funds, National Public Radio claims in reports here and here, citing data from Pensions & Investments magazine and a formula attributed to Joshua Rauh, a tenured associate finance professor at Northwestern University.

NPR applies a simple analysis that ranks bonds and cash as the safest investments. The more a state fund keeps in other kinds of investments - stocks, private investments, hedge funds, real estate - the more "risky".

As the Inquirer and P&I have reported, Pennsylvania leads the nation in the total proportion of "alternative" private equity, hedge fund, real estate and other illiquid investments managed by high-fee private money managers, some of whom are contributors to Gov. Rendell and other politicians who control the funds.

But do these investments really make the funds "risky," as NPR claims? I asked Rauh, and he wrote back: "SERS and Washington State are the two state public pension funds with the largest allocation to private equity. This is really what sets SERS apart and what pushes them up the list in terms of aggressiveness of their investments.

"Is it a good or bad idea for public pension funds to invest in private equity? The jury is still out. On the one hand, public funds should be doing more asset-liability management than they are, using bonds to match the benefit payments they have promised to employees.

"However, if their size and patience allows them to reap higher returns from illiquid investments than other investors could, there is also a role for them as private equity investors."

The tough choices will come a few years down the road, Rauh said, "if the pension funds start getting really low on assets and have to liquidate some assets to pay benefits. I did some calculations suggesting that under baseline investment return assumptions and without pension reform, Pennsylvania will run out of pension fund assets completely in 2023. The horizon of state pension funds may not be as long as people think" NJ is already trimming benefits.

Rauh has ranked state pension funds based on when they are likely to run out of money. According to his newly-published paper, "The Day of Reckoning", here, Pennsylvania ranks near the middle of the pack. New Jersey is in greater danger: it could run dry by 2018, five years sooner than PA, under current investment assumptions.

NPR's "risky" claim as regards PennSERS's asset mix is goofy. Dollar for dollar, Pennsylvania's pension system isn't the most "risky". But years of political over-promising and underfunding have made it risky enough, and things are as bad or worse in other big states.

About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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