Company: Cannery Casino Resorts, LLC
Sponsor: Oaktree Capital Management
Action: Moody’s downgraded the company’s corporate family and probability of default ratings to Caa1 from B2.
Highlights: “The downgrade reflects the slower than expected ramp up at Cannery’s two new casino facilities — the permanent facility at The Meadows which opened in April 2009 and Eastside Cannery in North Las Vegas which opened in August 2008. As a result, leverage will be significantly higher than expected.”

Company: Panolam Industries International Inc.
Sponsor: Genstar Capital LLC and Sterling Group LP
Action: Moody’s Investors Service withdrew all ratings of Panolam
the issuer entered bankruptcy.
Highlights: Moody’s last rating action for Panolam occurred on July 7 when the company’s Probability of Default was downgraded to D from Ca/LD.

View Past Downgrade and Upgrade Lists Here

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Blackstone, KKR, Apax, Providence and Permira-backed TDC is readying an IPO, according to rumors. (Reuters)

Barrick Gold Corp could sell off a nickel project in Tanzania and other non-core assets to fund other projects or acquisitions, Chief Executive Aaron Regent said on Wednesday. (Reuters)

Motorola hired JPMorgan Chase and Goldman Sachs to explore a sale of its home and networks mobility division.

Starcore International Mines Ltd., a TXU-traded mining company, has engaged Jordan Capital Markets Inc. as its financial advisor for the exploration of strategic alternatives.

Care Investment Trust Inc., a New York-based health care REIT managed by CIT Healthcare, is nearing completion of a review of its strategic alternatives.  CIT’s bankruptcy filing did not include CIT Healthcare.

Ratiopharm, a German drug maker, has attracted at least 10 first-round bids. (Reuters)

Dow Jones & Co is close to selling its interest in the Stoxx Ltd stock-indexing business for $309 million. Stoxx Ltd is a joint venture between Deutsche Boerse, Dow Jones and SIX Swiss Exchange. (Reuters)

Playboy is in play, possibly selling to Iconix Brand. (Reuters)

Toys ‘R’ Us is cleaning up its balance sheet ahead of an IPO, Debtwire speculated.

Nokia Siemens Networks is weighing a bid for the optical network division of Nortel Networks. Nortel is selling pieces of itself in bankruptcy.

Sinclair Tulsa Refining Co. is seeking buyers for its approximately 30 branded gasoline stations nationwide.

German retail group Arcandor is seeking buyers or investors for its Karstadt department store chain.

First Quench, a European wine retail group that owns of Threshers, Wine Rack, The Local and Haddows stores, is bankrupt and seeking buyers.

Hynix Semiconductor, based in South Korea, will restart the sale of a controlling stake in the world’s No.2 memory chip maker, valued at close to $3 billion, after the sole bidder pulled out. (Reuters)
Destiny Resource Service Corp. continues to seek strategic alternatives. The Calgary-based company provides seismic front-end services to energy explorers and producers and to seismic acquisition companies in North America.

Helicos BioSciences Corp., a genetic analysis instrument company based in Cambridge, Mass., is no longer for sale.

Info Group, a business-to-business marketing firm, took its first round of bids this week from both rivals and private equity firms. The company hired Evercore to advise it on a sale. (Reuters)

Canadian Phoenix Resources Corp. said its subsidiary, Serrano Energy Ltd., is exploring strategic alternatives.

Crystal River Capital, which in August launched a process to explore strategic alternatives,  said it is an “appropriate” time to assess a wide array of possible alternatives. “At present, no such decisions have been made and it is not yet possible to predict what will result from the process,” the company said.

Coinstar continues to explore strategic alternatives for its e-pay and money transfer businesses. Said CEO Paul Davis, “These are strong businesses in themselves, but they do not leverage our core competency in self service automated retail.”

OPTI Canada Inc., a Canadian oil sands business, is exploring strategic alternatives.

MGP Ingredients, based in Kansas, is considering its strategic options with respect to its Pekin facility.

Galleon is (obviously) weighing strategic alternatives for its assets…

CVC pulled out of talks with General Electric about a possible joint bid for the power and transmission unit of France’s Areva, a French financial news service reported on Sunday. (Reuters)

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That sounds a lot like what they were saying around this time last year, a hopeful prediction that sadly has not come true. I asked Akin Gump Partner Patrick Dooley what that says about private equity investors. His response was “Hope springs eternal.” He also insisted insisted that buyout pros do really expect that deal financing will return next year and valuation gaps will narrow.

The survey found that 44% of survey respondents who expect valuation gaps to narrow predict it happening in the first half of next year. Meanwhile 61% of those surveyed said they expect financing markets to improve in the first half of 2010.

Until that happens, the study, titled “Private Equity Under Dynamic Market Conditions,” suggests buyout firms employ strategies such as earnouts and rollover equity as a way to bridge the gap between the equity they’re willing to throw down and the amount of senior debt the company can secure.

One notable part of the survey was the fact that LBOs remain the preferred method of investing for the large majority of respondents–forget all this talk of PIPEs, minority deals and loan to own. Akin Gump wrote:

Many commentators expected the turmoil in the credit markets to drive private equity sponsors from LBO structures to alternative structures that were not as reliant on debt financing. Instead, the principal impacts have been on deal size and valuations. The current credit markets are more accommodating to middle market and smaller transaction sizes and lower valuations support expected target returns.

You can download the hopeful entire survey here:

Private Equity Under Dynamic Market Conditions: Portfolio Company Management & Key Deal Terms

FINAL REPORT - Private Equity Dynamic Conditions

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1. It’s a good thing the SEC is off for Veteran’s Day, or else it would be busy trying to sort through the slew of inside traders. First, 3Com’s stock price has been steadily raising for the past few days — as Dan Frommer points out — for no discernable reason.

Moreover, someone with access to a Bloomberg terminal sent over some charts showing the price and volume for 3Com $5 strike calls. Take a look at the below, and pay specific attention to the the bottom right-hand corner:

See that thick white line that comes out of nowhere? Well, that’s today’s volume. Nearly 4,000, after several weeks below 100. But if HP didn’t announce the deal until market close… [Update: Zero Hedge also noticed]

2. This deal is really a big break for 3Com shareholders (and not just those who cheated).

Remember that the company had agreed to sell itself for just $5.30 per share, or $2.2 billion, in 2007 to Bain Capital Partners and China’s Huawei Technologies Co. That transaction got held up because of U.S. government concerns about Huawei’s involvement.

Also perhaps means that Bain initially struck a smooth deal, considering that 3Com has apparently appreciated more than 22% over two recessionary years…

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Why aren’t willing sellers on the block? One reason is that some bankers and shareholders just want a company’s manager to focus on carrying the company through the recession without the distraction of an auction, said Robert Berry, Head of M&A at mid-market investment bank Raymond James. Further, they don’t want the company to be “tainted” by a failed auction process, as so many have been pulled from the auction block. “They could blemish the reputation of a company if its shopped widely and then taken off the market,” he said.

Even so, shareholders are more willing to have conversations about a sale than they were six months ago, he said.

There’s a new set of targets creeping closer to the market, Berry said. He’s seen some cases of family-owned companies considering liquidity events to get lenders off their backs. The companies had some debt but weren’t highly levered before the recession. They are still healthy, but their revenues and Ebitda have dropped, causing their leverage ratios to skyrocket. This leads to tripped covenants and a barrage of harassment from bankers. “Modifying covenants is expensive and they are just fatigued by dealing with the banks,” he said. These kinds of companies are interested in minority recaps, where private equity firms can inject more capital.

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There were just three ratings actions, one of which is a withdrawal on an already-bankrupt company. That company is Accuride, a company which Sun Capital took a stake in through its Sun Capital Securities hedge fund earlier this year. The company underwent a debt-for-equity swap as Sun Capital Securities transitioned out of its debt investment strategy to actively managed equity investments.

Company: Rafaella Apparel
Sponsor: Cerberus Capital Management LP
Downgrade: Moody’s downgraded the company’s corporate family and probability of default ratings to Caa3 from Caa1, and the rating on its 11.25% second lien notes to Ca from Caa2.
Highlights: “Rafaella’s liquidity is weak given its significant longer term debt maturities. However, balance sheet cash along with the expectation for modest free cash flow and revolver availability appear sufficient to cover cash needs over the next year.”

Company: Arrowhead General Insurance Agency Inc.
Sponsor: Spectrum Equity Investors, JMI Equity
Downgrade: S&P assigned its ‘B-’ counterparty credit rating and negative outlook to the company and ‘B-’ ratings to the company’s first-lien facilities and a ‘CCC’ rating to its second-lien debt.
Highlights: “The ratings on Arrowhead reflect its strained cash flow and diluted capital quality following the leveraged majority investment in Arrowhead by California-based Spectrum Equity Investors in 2006,” said Standard & Poor’s credit analyst Jieqiu Fan.

Company: Sun Capital Partners
Sponsor: Accuride Corp.
Downgrade: S&P withdrew its ratings on the company.
Highlights: The corporate credit rating and subordinated debt rating the company were lowered to ‘D’ (default) on Aug. 6, 2009, after the company missed making an interest payment on its subordinated notes. The senior secured debt ratings were lowered to ‘D’ on Oct. 8, 2009, after the company filed for Chapter 11 bankruptcy protection.

View Past Downgrade and Upgrade Lists Here

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09 Bonus Watch: Get ready for your big bonus! They’re “BACK!” Unless of course they never went away for you (talking to you, PE pros…). (WSJ)

The Man Who Sunk Citi Starting a Hubris Fund: Proof that no matter how much you lost on subprime bets, you can still raise $100 million for a hedge fund. (Dealbreaker)

Bank Buyin’ Siguler Guff has purchased a stake in a Russian bank. (FT)

Shady: Why would any board of directors provide incentives to CEOs to do deals?  (Breakingviews via Abnormal Returns)

Go Big or Go Home: Dan and I have concluded that TPG and CPP’s deal for IMS Health is the largest private equity deal of the year. Mega-firms, do you really want to be beat out by a firm that gave money back to investors and a pension plan? (Dealbook)

Hey Retail Owners: If you aren’t luring customers in with “private” sales, then you’re not maximizing sale opps. (BusinessWeek)

Goodfellas: Michael Corkey thinks the Galleon situation reminds him all too much of a mafia movie. (Deal Journal)

Catch a Wave: Yet another I-bank predicts a “wave” of M&A. (Dealzone)

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As Henry Kravis would say, that’s just the nature of the beast.

peHUB has obtained permission to post the entire study, called $640 Billion & 640 Days Later. Download it below.

Of course, any study on private equity performance from ratings agencies takes a necessarily narrow view of the situation. It focuses on on company debt, which looks bad, but doesn’t reflect the performance of the overall investment. As my colleague Megan Davies pointed out this morning, the investment can be a success regardless of the company’s debt level. In fact, many of the companies which Moody’s classifies as “defaulted” only earn that title because they’ve done a debt-for-equity swap. Lenders usually take a hit on those deals, but the company typically remains unscathed, not to mention, it preserves a buyout fund’s investment.

All that said, it’s notable that Moody’s singled out Apollo and Cerberus as having the riskiest, worst-performing debt on their deals. Apollo clearly disagrees with Moody’s warning, since in past year it has been voraciously eating its own cooking, buying up loads of debt of its own portfolio companies.

Moody’s also piles on with warnings about the ridiculous wall of looming debt maturities everyone’s been freaking out about for the past six months. Nothing new here (especially considering that’s the entire theme of Josh Kosman’s book), unless Moody’s wants to be sure it can join the chorus of “Told you so’s” if it actually does happen.

However. The study has a few notable highlights that the mainstream press has yet to pick up on:

Dividends aren’t all that risky.

Among the 186 private equity deals in this study, sponsors took out dividends on 44 LBOs. Yet this group of deals actually boasted only six defaults-a 13.6% rate, lower than the rates for the entire 186-LBO study (19.4%) or for other, similarly rated companies (18.6%).

PE defaults aren’t more common than regular company defaults.

Companies affiliated with the 14 largest private equity firms have experienced similar rates of default to other companies over the course of the January 2008-September 2009 period of our study-a 19.4% rate of default among private equity firms, compared to a rate of roughly 18.6% for similarly rated companies. (See box, page 3, for an explanation of how we made this comparison).

Download the full report here: $640 Billion & 640 Days Later

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BioSyntech, Inc., a biotechnology company, retained PricewaterhouseCoopers to advise it with on a formal review of strategic alternatives including, but not limited to, a commercial partnership involving its cartilage repair device BST-CarGel® or a corporate sale of the Company.

Pabst Blue Ribbon, the Milwaukee beer brewer, has hired Bank of America Merrill Lynch to shop itself to potential buyers, the New York Post reported. The company expects around $300 million in deal value.

Opti Canada, a Calgary-based energy company which is a minority partner in the Long Lake project in northern Alberta, said it was considering selling itself.

Smart Balance, the publicly traded maker of butter substitutes, raised new debt to pay off its old debt, saying the new capital structure “enables us to consider strategic alternatives to enhance shareholder value in the years ahead.” The company did not say whether those alternatives include a sale of the company.

AT&T is seeking a buyer for some Louisiana assets.

USEC Inc., a nuclear-fuel enrichment company, retained a financial advisor to help it explore strategic alternatives to help it address Department of Energy concerns in a updated loan guarantee application.

Ceres Agriculture fund, an actively-managed pure agriculture fund, announced a review of strategic alternatives, including a restructuring of the company.

National Amusements was seeking a buyer for its minority stake in CBS Corp and its minority stake in Viacom Inc.

CIT Group was seeking a buyer for its Aerospace Leasing Operations.

Devon Energy, a Texas-based energy company, was seeking a buyer for certain Gulf of Mexico offshore oil properties.

FBOP Corp., an Oak Park, Illinois-based bank holding company, was seeking a buyer for the company.

Lloyds continues to seek buyers for Lloyds TSB Scotland, Cheltenham & Gloucester and Intelligent Finance, its online business.

MDS, a Canadian healthcare company, is seeking buyers for its Pharma division.

New York Times Co. continues to seeking a buyer for its 17.75 percent stake in New England Sports Ventures LLC, based in Boston.

Telligenix, an Orlando, Fla.-based provider of employee education services to real estate, investment and entrepreneurship businesses, was seeking a buyer for the company.

Vion Pharmaceuticals, a New Haven, Conn.-based developer of novel agents for the treatment of cancer, was seeking a buyer for the company.

View Prior Lists here.

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In Case You’re Following: Bonds are bad, says Dr Doom. (FT Alphaville)

PE Target? With KKR and KPS’s beer deals lately, it wouldn’t surprise me if a buyout firm went after Pabst Brewing Company, which is shopping itself via Bank of America Merrill Lynch. (NY Post)

This is a Large Deal But Maybe Not a Big Deal: Warren Buffet enters the mega-buyout game, precisely when no one else is. (WSJ)

Want to be an accountant? Here is some resume advice. (FINS)

Not Just for College Kids: Here are 15 podcasts that will make you smarter. (College Crunch)

Directories: The Periodic Table of finance bloggers. (No peHUB sadly!) (Reformed Broker)

Dear Lawyers, here’s some advice on how to make it through next year, including why you should embrace the suck, embrace non-lawyers, and get over yourselves. (Law.com)

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