Snapshots from the Catbird Seat - KKR: Kohlberg Kravis Roberts & Co.

KKR

KOHLBERG KRAVIS ROBERTS & CO.

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March 7, 2008

Party seems to be over
for buy-out firms

By Henny Sender in New York, The Financial Times

When Carlyle Group established its now struggling mortgage-backed fund and decided to list it, last year, it seemed like a smart and even risk-free thing to do. Today, with the credit markets in full meltdown, that plan seems both arrogant and hazardous.

The private equity firms were the most powerful players in capital markets across the globe and were buying up ever bigger public companies. Carlyle’s co-founder David Rubenstein appeared at conferences, predicting that $80bn-$100bn buy-outs would soon be possible.

Investors were throwing money at private equity firms. They, in turn, were keen to attract as much of that money as possible because many of the leading private equity groups were considering plans to go public and part of the dynamic was to have size and scale, which meant having as many assets under management and collecting as many fees as possible.

Carlyle marketed its mortgage-backed fund to the investors in its flagship buy-out funds as a safe place for them to park their cash, while waiting to write cheques for deals, such as the $15bn purchase of Hertz.

The idea was doubly seductive for Carlyle since it would swell its assets under management and its fees. It was equally attractive for investors since interest rates were low and the fund promised lucrative returns. Listing would help the fund grow even more quickly.

The fund also looked attractive because after all what could be safer than its triple-A-rated mortgage securities? It was nothing like the complicated and high-risk vehicles, such as the structured investment vehicles (SIVs), which borrowed short-term and lent long-term, and had already blown up months before.

Only a careful read of the offer memo would have informed would-be investors that the fund had the ability to use borrowed money . . . and plenty of it – more than 90 cents on the dollar.

That in turn exposed the fund to twin risks. If there were losses in the value of the debt, those losses would be magnified by the use of leverage. Secondly, the fund was exposed to the risk that skittish banks might one day cut back credit lines.

That second fear appeared remote even eight months ago, when the fees the private equity firms paid Wall Street were measured in the hundreds of millions of dollars, making the buy-out groups the banks most lucrative customers. That the banks would dare to stand up to these powerful clients seemed inconceivable.

Today, however, after the market capitalisation of most banks has been halved, and with their own backs to the wall, those same banks are in a very different position.

“There comes a time when the banks have to ask our clients to live up to their side too,” says the head of the group which deals with private equity firms at one major US bank. There are only so many times the banks can forestall or turn a blind eye. They have to say you put up the margin or we are taking the collateral.”

Today both the Carlyle fund and a similar Kohlberg Kravis Roberts fund are in bad shape, introducing a rare bout of humility for the two firms which launched them. Private equity firms such as TPG, which refrained from such diversification and looked ultra-conservative in 2007, now look far less tarnished by contrast.

It is likely that the equity of Carlyle’s fund will be wiped out and that if the financing evaporates, Carlyle will be forced to liquidate the fund. In a release on Friday, Carlyle noted “additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital”.

July 3, 2007

Private-equity firm KKR files
for $1.25B bln IPO

By Gabriel Madway

SAN FRANCISCO (MarketWatch) -- Private-equity firm KKR & Co LP filed late Tuesday with the Securities and Exchange Commission to raise up to $1.25 billion in an initial public offering.

KKR said its existing owners will not sell any common units or otherwise receive any of the net proceeds from the offering. KKR expects to complete the IPO in the third or fourth quarter of 2007. The firm said it plans to apply to list its common units on the New York Stock Exchange under the symbol "KKR."

Morgan Stanley and Citigroup Global Markets are serving as underwriters for the deal.

February 26, 2007

TXU announces $32B sale
to private firms

By David Koenig, AP

DALLAS - TXU Corp., Texas' largest electricity producer, said Monday it has agreed to be sold to a group of private-equity firms for about $32 billion in what would be the largest private buyout in U.S. corporate history if shareholders go along.

Kohlberg Kravis Roberts & Co. and Texas Pacific Group led a group that included Goldman Sachs & Co. and three other Wall Street firms that will pay $69.25 per share for TXU. They will also assume about $13 billion in debt.

The firms won support for the buyout from some environmentalists who have criticized TXU by agreeing to sharply scale back TXU's controversial $10 billion plan to build 11 new coal-fired power plants that would produce tons of new greenhouse gas emissions.

They also agreed to cut electricity prices 10 percent, which they said would save TXU residential customers more than $300 million per year, and limit prices until September 2008.

TXU directors voted Sunday night to recommend that shareholders approve the sale. The price represents a 25 percent premium to TXU's recent average closing stock price before Friday.

The deal tops the previous biggest buyout ever of $25.1 billion set in 1988 when RJR Nabisco was acquired by Kohlberg Kravis.

Goldman Sachs, Lehman Brothers, Citigroup and Morgan Stanley also intend to be part of the purchasing group at closing, the company said.

TXU also said former Secretary of State James A. Baker III will serve as advisory chairman to the new owners, former EPA Administrator William Reilly and former Commerce Secretary Donald L. Evans will join the TXU board.

http://news.yahoo.com/s/ap/20070226/ap_on_bi_ge/txu_sale_21

February 2, 2006

Del Monte to close pineapple
operations in Hawaii

CBC News

Del Monte Foods Co. — the company that made Hawaii famous for its pineapples — is shutting down its operations on the islands because it is cheaper to grow the fruit somewhere else.

"It would be cheaper for Del Monte to buy pineapples on the open market than for the company to grow, market and distribute Hawaiian pineapple," the company said.

Formerly a part of RJR Nabisco, it was bought by Texas Pacific Group in April 1997.

The last crop will be harvested in mid-2008 with the loss of about 700 jobs.

The departure of the Del Monte operations may affect the viability of the two remaining pineapple companies in Hawaii, Dole Pineapple and Maui Pineapple Co., said Fred Galdones, president of International Longshore and Warehouse Union Local 142.

"I hope it's not a domino effect like it was with the sugar companies, where one had closed and the others followed suit," he said.

Del Monte claims to be the largest producer and distributor of branded processed fruit and vegetables in the United States, with sales of $1.3 billion US in 2001. It has plants across the United States and in Venezuela....

Del Monte began pineapple operations in Hawaii 90 years ago.

http://www.cbc.ca/money/story/2006/02/02/delmonte-060202.html

The Bush Family and the Five Star Trust

From Environmentalists Against The War

Another probe by Manhattan District Attorney Robert Morgenthau is focused on long-time Bush backers Sam and Charles Wyly of Texas and a Bank of America off-shore account in the Isle of Man.

According to intelligence sources, that probe is getting very close to an Isle of Man multi-billion dollar account controlled by the Bushes through an off-shore contrivance known as Five Star Trust.

Charles Wyly serves on the board of the University of Texas Investment Management Company (UTIMCO). Critics have charged that hundreds of millions of dollars of UTIMCO's $11 billion in public funds have been steered to investment funds run by Bush family friends and supporters.

A number of UTIMCO's past and current directors are members of George W. Bush's "$100,000 Club." These include, in addition to Wyly, former UTIMCO chairman Tom Hicks, a vice chairman of Clear Channel and head of Muse, Tate & Furst, Inc.; L. Lowry Mays, the chairman of Clear Channel; former Texas Representative and current lobbyist Tom Loeffler (who received illegal laundered campaign contributions from the failed Vernon Savings & Loan); A. W. Riter, a former chairman of NCNB Bank in Tyler, Texas; A. R. "Tony" Sanchez, Chairman of Sanchez-O'Brien Oil & Gas, owner of the Texas border-based International Bank of Commerce and the failed Tesoro Savings & Loan; and Woody Hunt, Chairman of Hunt Building Company.

Some of UTIMCO's investments were directed to firms with close ties to Bush "Pioneer" contributors Lee Bass (Bass Brothers Enterprises), Henry Kravis (Kohlberg Kravis Roberts), and Charles Wyly (Maverick Capital Fund), as well as George W. and H.W. Bush (The Carlyle Partners II Fund, managed by The Carlyle Group).

Shady Deals around the World

Texas money-laundering is the tip of a Bush family financial iceberg that extends below the surface to shady financial deals around the globe. However, investigators who dare venture into Texas will have their jobs cut out for them.

The Bushes have been major recipients of campaign cash from senior partners of the largest law firms in Texas — Vinson & Elkins, Baker Botts (law firm of James Baker III), Andrews Kurth (the law firm of contentious US District Judge Priscilla Owen), Jenkins & Gilchrist, Haynes Boone and Bracewell & Patterson — that have also been involved in defending those Texas companies and principals who have benefited from massive illegal financial flows.

www.envirosagainstwar.org/know/read.php?itemid=3306

July 21, 2004

CENTERPOINT ENERGY ANNOUNCES SALE OF TEXAS GENCO FOR $3.65 BILLION

Sale also includes buy-out of public shareholders

Houston - July 21, 2004 - CenterPoint Energy, Inc. (NYSE: CNP) and Texas Genco Holdings, Inc. (NYSE: TGN) today announced a definitive agreement for GC Power Acquisition LLC, a newly formed entity owned in equal parts by affiliates of The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P. and Texas Pacific Group, to acquire Texas Genco, a wholesale electric power generation company, for approximately $3.65 billion in cash. The agreement includes a buy-out of Texas Genco’s public shareholders.

The transaction, subject to customary regulatory approvals, will be accomplished in two steps. The first step, expected to be completed in the fourth quarter of 2004, involves Texas Genco’s purchase of the 19 percent of its shares owned by the public for $47 per share, followed by GC Power Acquisition’s purchase of a Texas Genco unit that will be formed to own its coal, lignite and gas-fired generation plants.

In the second step of the transaction, expected to take place in the first quarter of 2005 following receipt of approval by the Nuclear Regulatory Commission, GC Power Acquisition will complete the acquisition of Texas Genco, the principal remaining asset of which will then be Texas Genco’s interest in the South Texas Project nuclear facility...

The transaction has been approved by the board of directors of CenterPoint Energy and by the board of directors of Texas Genco acting upon the unanimous recommendation of a special committee composed of independent members of the Texas Genco Board.

“We believe that the sale of Texas Genco is beneficial for both companies,” said David M. McClanahan, president and chief executive officer of CenterPoint Energy. “The sale enables CenterPoint Energy to reduce its debt and concentrate on its energy delivery businesses.

“I am also pleased that Texas Genco’s new owner is backed by some of today’s strongest private equity investment firms, which should allow it to build on the firm foundation that the management and employees of Texas Genco have established over the years. Of course it’s hard for us at CenterPoint Energy to let go of a business that has been a part of our company for so many years. But under the plan we developed in response to the 1999 Texas electric restructuring law, it is time for CenterPoint Energy to take this step,” said McClanahan.

The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P. and Texas Pacific Group said in a statement: “We have focused extensively on the energy sector and we are excited to purchase Texas Genco, one of the nation’s largest independent electric generating companies. Through Texas Genco, we are acquiring high quality coal, nuclear and gas power plants in the rapidly growing Houston market. We look forward to joining with the dedicated employees of a newly-independent Texas Genco to continue to provide outstanding service to Texas Genco’s customers while developing the nation's premier independent power generation business.”

CenterPoint Energy was advised on the transaction by Citigroup Global Markets Inc. and Baker Botts L.L.P., and the special committee of independent directors of Texas Genco was advised by RBC Capital Markets Corporation and Haynes and Boone, LLP. GC Power Acquisition LLC was advised by Goldman Sachs, Deutsche Bank and Morgan Stanley and the law firms Simpson Thacher & Bartlett LLP, Stroock & Stroock & Lavan LLP and Vinson & Elkins LLP.

CenterPoint Energy, Inc., headquartered in Houston, Texas, is a domestic energy delivery company that includes electric transmission & distribution, natural gas distribution and sales, interstate pipeline and gathering operations, and currently owns 81 percent of Texas Genco Holdings, Inc. The company serves nearly five million metered customers primarily in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Texas. Assets total over $21 billion. With more than 11,000 employees, CenterPoint Energy and its predecessor companies have been in business for more than 130 years. For more information, visit the Web site at www.CenterPointEnergy.com.

Texas Genco Holdings, Inc., based in Houston, Texas, is one of the largest wholesale electric power generating companies in the United States with over 14,000 megawatts of generation capacity. It sells electric generation capacity, energy and ancillary services in one of the nation's largest power markets, the Electric Reliability Council of Texas (ERCOT). Texas Genco has one of the most diversified generation portfolios in Texas, using natural gas, oil, coal, lignite, and uranium fuels. The company owns and operates 60 generating units at 11 electric power-generating facilities and owns a 30.8 percent interest in a nuclear generating plant. For more information, visit our web site at www.txgenco.com.

The Blackstone Group, a private investment and advisory firm with offices in New York, Atlanta, Boston, London and Hamburg, was founded in 1985. The firm has raised a total of approximately $32 billion for alternative asset investing since its formation. Over $14 billion of that has been for private equity investing, including Blackstone Capital Partners IV, the largest institutional private equity fund at $6.45 billion.

Blackstone has made private equity investments throughout the energy sector including petroleum refining, oil and gas exploration and coal mining. In addition to Private Equity Investing, The Blackstone Group's core businesses are Private Real Estate Investing, Corporate Debt Investing, Marketable Alternative Asset Management, Corporate Advisory, and Restructuring and Reorganization Advisory. For more information, visit www.blackstone.com.

Hellman & Friedman LLC is a San Francisco-based private equity investment firm with additional offices in New York City and London. Since its founding in 1984, the Firm has raised and managed approximately $5 billion of committed capital and invested in over 45 companies. Hellman & Friedman recently completed raising its fifth fund, Hellman & Friedman Capital Partners V, L.P., a $3.5 billion fund. Representative investments include Axel Springer AG (ASV GR), ProSieben Sat.1 AG (PSM GR), Formula One Holdings, Ltd, Arch Capital Group Limited (ACGL), the NASDAQ Stock Market, Inc. (NDAQ), Young & Rubicam, Inc., Western Wireless Corporation (WWCA), Franklin Resources, Inc. (BEN), and others. For more information, visit www.hf.com.

Kohlberg Kravis Roberts & Co. L.P. is one of the world's oldest and most experienced private equity firms specializing in management buyouts, with offices in New York, Menlo Park, California, and London, England. For more information, please visit www.kkr.com.

Texas Pacific Group, founded in 1993 and based in Fort Worth, TX, San Francisco, CA, and London, is a private investment partnership managing over $13 billion in assets. Over the past several years, TPG has built an industry practice focused on the energy and power sectors (Denbury Resources, Portland General Electric (pending)). Additionally, the firm seeks to invest in world-class franchises across a range of other industries, including airlines (Continental, America West), branded consumer franchises (Burger King, Del Monte, Ducati), leading retailers (Petco, J.Crew, Debenhams - UK), healthcare companies (Oxford Health Plans, Quintiles Transnational), and technology companies (ON Semiconductor, MEMC, Seagate)...

This news release includes forward-looking statements. Actual events and results may differ materially from those projected. The statements in this news release regarding future financial performance and results of operations and other statements that are not historical facts are forward-looking statements. Factors that could affect actual results include the timing and impact of future regulatory and legislative decisions, effects of competition, weather variations, changes in CenterPoint Energy's or its subsidiaries' business plans, financial market conditions, the timing and extent of changes in commodity prices, particularly natural gas, the impact of unplanned facility outages and other factors discussed in CenterPoint Energy's and its subsidiaries' filings with the Securities and Exchange Commission.

www.kkr.com/news/press_releases/2004/07-21-04-centerpoint.html

August 11, 1997

WAS HENRY KRAVIS OUTFOXED
IN RUSSIA?

KKR claims it deserves a payout in Tatarstan.
The government says ''no deal''

In the U.S., they're Masters of the Universe. In Russia, they could be just another piece of roadkill. Three years ago, Kohlberg Kravis Roberts & Co. struck a deal with truckmaker Kamaz on the steppes of Tatarstan in central Russia. KKR agreed to raise money to pull the newly privatized company out of a deep financial ditch. In exchange, KKR got an option to buy a big stake in Kamaz. Since 1993, KKR partners logged hundreds of hours, spent millions out of pocket, lined up more than $750 million in loans and refinancing, and dispatched consultants and lawyers to help Kamaz restructure.

With Russia's economy showing signs of recovery and its stock market surging, Kamaz may be on the brink of a turnaround. But Kamaz' management changed in June, and KKR's big payoff--control of a 16.5% stake currently worth $50 million--may be snatched away. The government of Tatarstan, an autonomous republic within Russia, has taken control of Kamaz, and all bets are off as to whether KKR will receive its promised equity.

Ravil Muratov, who is both Tatarstan's Deputy Prime Minister and Kamaz' new chairman, claims that KKR was required to raise equity capital, not bank loans. KKR declined public comment.

TOO OPTIMISTIC. Muratov contends that KKR took advantage of Kamaz when it was desperate. ''I said to KKR: 'Can you show me where in your experience in Europe and America you can find idiots in a government who will give you something for nothing,''' he recalls. Unless the leveraged buyout firm immediately raises $300 million in new equity, Muratov says, ''KKR is not going to get hold of those shares.''

Upon receiving Muratov's ultimatum, KKR executives immediately hopped on a plane to Moscow to meet with him. The chairman refused to budge. KKR clearly will fight to protect its stake. And no wonder. KKR partners are among the world's savviest dealmakers, and they negotiated terms on a high-risk deal that could give them a huge potential payoff with only a $50,000 up-front investment. If Kamaz gets back on track--and if KKR ever collects its equity--it will have paid a song to make a $34 million profit on its stake.

Still, sources familiar with the deal note that Kamaz hasn't paid KKR a promised $10 million a year in management fees since 1993. It's clear that KKR considers Kamaz' about-face a violation of Russian and international law. ''This is a major international incident. They are thumbing their nose at the entire Western financial Establishment,'' says a key source.

For its part, KKR may have misjudged the difficulty of turning around a Soviet-style industrial behemoth. And it may have been overly optimistic for Kravis and partners to expect to squeeze American-style fees out of a destitute truck factory. What is certain, though, is that the LBO firm underestimated the power of Tatarstan, one of Russia's richest and most fiercely independent regions.

Tatarstan may well get away with its move against KKR even though the firm has a strong claim to the equity. A lawyer who represented Kamaz in drafting the agreement says it clearly specified that bank loans would satisfy KKR's fund-raising obligations. The agreement permits KKR to seek arbitration outside Russia to settle the dispute. But an arbitrator's decision would have to be enforced by the Russian government. And Moscow may not want to pick a fight with Tatarstan, one of the few Russian regions not in debt to the federal treasury. ''KKR is probably sorry they ever heard of Kamaz,'' says a Western banker who watched the drama unfold.

At least KKR has only the firm's--and not their investors'--money at stake. Still, KKR invested large amounts of management time, including the personal involvement of the firm's two founders, Henry R. Kravis and George R. Roberts. Partner Michael T. Tokarz, KKR's point man on the project, averages an hour a day on Kamaz and is a frequent visitor to the factory. Time is a valuable commodity at a firm where just 11 partners manage a portfolio of 21 companies with combined revenues of $47 billion.

The KKR dispute may scare away potential foreign investment in Russia. For instance, it could affect Tatneft, a big oil company based in Tatarstan that is poised to become the first privatized Russian company to get a full American depositary receipt listing on the New York Stock Exchange. The Tatarstan government hopes to issue Eurobonds by the end of 1997.

In hindsight, KKR's investment may appear rash for a firm without international experience. But in 1993, Russia's investment potential seemed limitless. Industries were being privatized with the stroke of a pen, Western aid was pouring in, and Boris Yeltsin's government was wooing foreign investors. And Kamaz' management was eager for help. When it opened in 1975, Kamaz was the world's largest truck factory with 117,000 employees. In 1990, the company was privatized and the Tatarstan government retained an 8.3% stake.

But even after privatization, the company's problems were massive. Its trucks were outmoded and its market dried up. Kamaz even served as the municipal government of Naberezhnye Chelny and had to provide services for a city of 500,000. Then, in 1993, a fire destroyed the engine plant where Kamaz and Cummins Engine Corp. had a joint venture. Desperate Kamaz managers called American Re-Insurance Corp., then owned by KKR, to assess the damage. AmRe suggested calling KKR.

Soon after, when a delegation of Kamaz managers showed up at their Manhattan offices, Kravis and his colleagues.

es listened politely and sent them away. ''We told them: 'You don't qualify for investments like we make,''' says a source who attended the meeting. Twice more Kamaz persisted, before offering KKR an option to acquire shares in the company in exchange for fund-raising and management assistance.

Bolstered by expensive legal advice--and the possibility of a huge payoff--KKR took the plunge. ''Henry and George didn't put up any real money. And if it did work, there would be enormous upside,'' says one U.S. banker. In 1993, KKR paid $50,000 for a 1% stake in Kamaz and signed a consulting agreement. Soon after, KKR agreed to the complex arrangement under which it could acquire Kamaz stock.

KKR quickly lined up a $100 million loan from the European Bank for Reconstruction & Development and $150 million from Vneshtorgbank, a Russian bank. It also secured refinancing of more than $500 million in bank debt, saving Kamaz millions in interest payments. With help from consultants--recruited by KKR but paid for by Kamaz--the truck company made considerable progress, shedding most of its social responsibilities and stepping up production of a popular 3.5-horsepower micro-car called the Oka.

But Kamaz slid deeper into debt. In June, Kamaz' board agreed to give Tatarstan a 43% stake in Kamaz in exchange for loan guarantees and restructuring Kamaz' bank debts. KKR supported the transaction. The board also ousted longtime Chairman Nikolai I. Bekh, who had wooed KKR, and replaced him with Muratov, a leading power in the autocratic regime of Tatarstan's Prime Minister Shaimiev. The Shaimiev government had grown impatient with Kamaz' slow progress under Bekh and felt he had let KKR take advantage of the company.

WHITE KNIGHT? Today, things are looking up. Kamaz, which plans to spin off its Oka division, has watched its stock soar 175% this year. ''Kamaz is at a turning point,'' says Igor S. Antonov, deputy chairman of Oneximbank, a major Russian bank considering a loan to the company.

Muratov depicts Tatarstan as a white knight that is helping Kamaz much as the U.S. government bailed out Chrysler Corp. He pledges to pursue the restructuring plan recommended by KKR, while shoring up the truckmaker with tax breaks, subsidies, and loan guarantees. But just as KKR underestimated the difficulties of rescuing Kamaz, Tatarstan may not realize the damage it could cause itself by reneging on the KKR deal. ''It will piss off a hell of a lot of people,'' says a key source. If KKR gets run off the road, Tatarstan and Kamaz could be the real victims.

By Carol Matlack in Moscow, with Patricia Kranz in Naberezhnye Chelny and Leah Nathans Spiro in New York

www.businessweek.com/1997/32/b353990.htm

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"Our safety, our liberty, depends upon preserving the Constitution of the United States as our Fathers made it inviolate. The people of the United States are the rightful masters of both Congress and the Courts, not to overthrow the Constitution, but to overthrow the men who pervert the Constitution."

-- Abraham Lincoln

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