Who is Lone Star? And why are they buying toxic paper?

[Joanne98]

Even the street.com is asking that question this morning. The Lone Star Fund, located in Dallas Texas, is making out like a bandit. They got they're start in the S&L crisis, so they have lots of experience.

This mortagage/banking/credit/oil crisis is MIHOP!

We need whistleblowers from the finacial industry to COME FORWARD!

Bush is wiping out the banks on purpose. Carlyle is lobbying congress to be able to buy bigger shares of banks. Lehman is selling it's investment unit to Blackrock. What is an investment bank without an investment unit? Please brokers come forward before they wipe out the whole country.

Who is Lone star?
http://www.stockpickr.com/problog/817/

But what isn’t up to debate is that Lone Star Capital has a history of bucking the trend and proving the naysayers wrong.

Recently, Merrill Lynch (MER) said it was selling a portfolio of collateralized debt obligations, or CDOs, with an original face value of $30.6 billion, to the Dallas-based private equity firm Lone Star Capital for $6.7 billion. But who is Lone Star Capital, and why the heck is it buying this toxic paper?

Lone Star, which was founded in 1995 and is led by John Grayken, specializes in investing in distressed assets. Lone Star runs approximately $14 billion dollars in six funds:

1.Lone Star Fund V: Targets financial and real estate assets on a global basis, focusing on investments in secured and corporate unsecured debt, portfolios of distressed real estate and financially-oriented operating companies.

2.Lone Star Fund IV : Approximately 76% of the capital in Lone Star Fund IV was invested in Japan and South Korea. Germany also emerged as an active region as Lone Star Fund IV acquired the first seven portfolios of nonperforming loans to trade in the marketplace.

3.Lone Star Fund III: Comprised of secured and corporate unsecured loans, corporate acquisitions and leveraged debt financing.

4.Lone Star Fund II: Approximately 75% of the capital of Lone Star Fund II is also invested in Japan and South Korea.

5.Lone Star Opportunity Fund: Acquires assets of sub-performing mortgage debt, origination of high loan-to-value first mortgages and direct ownership of developed real estate.

6. Brazos Fund: Invests in Brazil.

The firm made its name in 1990, during the savings-and-loan crisis, by taking massive positions in companies that faced financial stress, rehabilitating them and then selling them to other investors for huge returns.

One of its first big deals was the purchase of Shoney's. After owning the restaurant for about five years, it sold it off to another investor for a triple-digit return.

In 2001, Lone Star also bought a small nationalized lender from the Japanese government for around $400 million. It sold a third of the bank for $800 million and the rest to a hedge fund for about $2 billion. Another triple-digit return

Recently, it bought CIT Group's (CIT) mortgage business for $1.5 billion. Leon Cooperman, who runs Omega Advisors and is the former chairman and CEO of Goldmans Sachs' (GS) Asset Management division, said with regards to CIT: “Its book value is about $15 a share. We think they can earn $1.50 to $2, and we wouldn't be surprised if the company is sold.”

Lone Star also bought Bear Stearns' residential mortgage business and paid $295 million for Accredited Home Lenders Holding.

Since Accredited Home Lenders Holding, which at one point was the 10th-largest subprime lender, investors would have to figure that Lone Star has a pretty good grasp on the rate of total defaults in the subprime market. This likely means that the actually price that Lone Star paid Merrill is most likely a substantial discount to where these CDOs should be trading.

This is clearly a great time to be a well-capitalized, well-positioned value investor. Even the head of Lone Star, John Grayken, said: "This is as good a distressed environment as we've seen in a long time." The key here is to find the ugliest securities, which investors have given up on, and watch them snap back.

HEADS UP NEW YORK. You're new Gov. Is talking about selling your bridges to private equity. Stop him now before it's too late.

[NMDemDist2]

1. hubby says at 22 cents on the dollar they can accept short sales on houses

and still make a killing

[Joanne98]

4. What's a short sale on a house?

[NMDemDist2]

10. when the lender accepts an offer lower than the mortgage owed

for instance, I have a mortgage for $300,000 but a buyer wants to give me $250,000 for my house.

if the mortgage holder accepts the $50,000 loss, that's a 'short sale'

[NightWatcher]

2. my fear is people are starting to sell short to make money before the crash

I think that Lone Star and others are just getting in position to buy cheap after the crash.

...Disaster capitalism as Naomi Klein calls it. I am seeing it more and more.

[Joanne98]

5. What do you mean sell short? You mean cheap?

You can't short houses can you?

[NightWatcher]

7. I'm not an economist, but couldnt you sell funds based on housing securities short just like

the airline stocks were sold short before 9/11 in anticipation that the stocks would lose value?

[Joanne98]

3. OMG! Look at Oregon!

Note: Also see Lone Star Part II, which has link to youtube video of Grayken’s comments before the OIC.

Today Oregon PERS investment arm, the Oregon Investment Council, met and awarded more than $1 billion in investment management contracts at its monthly meeting, including approving $600 million for Dallas based Lone Star and another $400 million for Boston based Grove Street Advisors. Also scheduled but postponed until February due to founder David Bonderman’s illness was another proposed $775 million investment in private equity firm, the Texas Pacific Group.

Lone Star CEO and Founder John Grayken is pictured below making his proposal for Lone Star, after having just returned from testifying at his firms trial over market manipulation in South Korea regarding the Korea Exchange Bank. This is somewhat ironic because in his proposal to the OIC Grayken noted that when his firm buys distressed securities portfolios, they “often get the underlying bank for free.” In the Korean bank’s case they plan to sell the bank to HSBC for $6 billion, if approved by regulators there.

Grayken’s firm is now positioning itself to purchase distressed debt and aggressively foreclose on both residential and commercial real estate properties here in the U.S. “The race is on to play this situation,” he said. Grayken also noted that his firm was not hurt by the subprime meltdown because they only originated the loans, having purchased a “large subprime originator in San Diego.”

Grayken added that this is as good a market we’ve seen for making lots of money in years and the “key is liquidating collateral.” What this means is that their primary strategy is to aggressively foreclose on both residential and commercial property.

Meanwhile, the Oregon legislature is considering meeting to discuss how to deal with the home foreclosure crisis and is making no connection with the PERS investment. A related article by Pulitzer Prize winner Nigel Jaquiss follows.

OIC Council members were so taken by Grayken’s proposal that they increased the proposed approved investment from a planned $400 million to $600 million.

Also on the meeting’s agenda was the proposed divestiture of companies doing business in Iran. Some might ask, why is it so easy for Oregon PERS to debate corporate governance initiatives involving distant nations while in fact much more important governance issues, including the mortgage crisis, develop unchecked in it’s own back yard?

On Saturday the Oregonian printed a story by Ted Sickinger highlighting that Oregon PERS lost $5 billion in January due to the stock market decline. This did not include potential losses in its large private equity portfolio due to the holdings becoming less liquid due to the 0verall market decline and now junk status of many bonds that. Here is an exerpt from the story.

continue to believe that it is a mistake for Oregon PERS to have 70 percent of its assets in stocks, private equity and real estate and only 30 percent in fixed income. In fact, my clients are now positioned the exact opposite with a maximum of 30 percent in equities and related investments. Foreign fixed income is also a key focus of my client portfolios.

Perhaps this aggressive allocation once again highlights why these council positions should be paid, involve people with investment management experience and higher standards regarding potential conflicts of interest. The current OIC Chair Dick Solomon’s presence on the council and ascendance to Chair was championed by Oregon’s most prominent lobbyist and close political ally of Governor Ted Kulongowski, Len Bergstein. Solomon is pictured below.

http://billparish.wordpress.com/2008/01/31/oregon-pers-to-cash-in-on-foreclosures/

[whistle]

6. Maybe it is an outsourced contractor for the Social Security Department

...investing in worthless paper to bailout Wall Street

[Joanne98]

8. Funds founder John Grayken, protégé of Texas billionaire Robert Bass

Lone Star Germany: Ravenous For Bad Debt

Workout veteran Lone Star is thriving by buying up Germany's troubled loans

The low-rise glass and steel building in Frankfurt where Lone Star Germany has its offices is partly empty, which is appropriate enough. Germany's troubled real estate market, with high office vacancy rates and stagnant housing prices, has been a disaster for banks such as Munich-based HVB Group or Bankgesellschaft Berlin. But it has been a bonanza for private equity firm Lone Star.

http://www.businessweek.com/magazine/content/05_11/b3924147_mz035.htm

Hicks Muse Bass The Bass brothers..

UTIMCO Raiders: The Bass Brothers
Lee, Ed, Sid, and Robert Bass have been fortunate from early on. It has been estimated that their uncle Sid Richardson, who UT has an auditorium in his name, was worth around $800 million. Following in their father's footsteps, each of the four attended Yale University; Ed and George W. Bush were classmates and friends there. The brothers used their inheritance to acquaint themselves with those in power; they got to know the powerful Richard Rainwater by having him manage their family fortune.

Based out of Forth Worth, they know others from the Metroplex. Tom Hicks proposed in 1998 that UTIMCO invest $20 million in the Bass Brothers Enterprises through the limited partnership of Prime Enterprises II. This wasn't the Bass brothers' first foray into the university setting. In 1991 Lee donated $20 million to his alma mater Yale to revitalize the Western Civilization program. This was the largest single gift in the history of the school, and it was too political for Yale. Bass used the gift as leverage, thinking it gave him a say in the hiring of faculty and the setting of curriculum, where he feared that "multiculturalism" was pushing out the 'classics' in favor "of Toni Morrison and Malcolm X.1" Hence, the largest donation ever made to Yale was basically a way to ensure that the Ivory tower stayed that color. After Lee sought to participate in hiring decisions, Yale gave the money back. To ensure that the family name would not be dragged through the mud, Perry Bass (Yale '37) offered $500 million to the school to release a report saying that his son did nothing wrong. However, Yale President Richard C. Levin turned his back on the deal even at a time when the school needed the money.2

The Bass brothers pumped $210,000 into Bush's gubernatorial campaigns, via their PAC's (Political Action Committees) and their personal donations of roughly $273,000. The billionaire Bass family is Bush's number 5 career patron. As Governor, Bush appointed Lee Bass as Chairman of the Texas Parks and Wildlife Department (TPWD). Amazingly, Bush later received $202,000 from the organization. TPWD made news when it was found to be passing out brochures at park entrances that contained tobacco and alcohol advertisements. TPWD also granted permits for their land that allowed hunters to make money from killing wild deer on Texas lands.

Back in the 1980's, George W. Bush was put on the board of directors at Harken Oil. In 1988, an oil venture to Bahrain was proposed. With Bush Sr. president at the time, the virtually unknown Texas company had beat out huge oil conglomerate Amoco for exclusive rights to exploration, development, transportation, etc. Even though Harken had no international experience and little capital for such a huge venture, Bahraini oil was theirs for the taking. Many thought that Harken was moribund, and without this contract they more than likely would have sunk. Harken got its big contract but couldn't finance it. The Basses then stepped into the picture by volunteering $25 million. Coincidentally, both were on Bush Sr.'s 1988 elite fundraising squad. Bush Sr.'s squad was the model for Bush's "Pioneers," to which Lee Bass belonged. This deal not only kept Bush's company afloat, but it was also a way for Bahrain to kiss up to the President.

So, who wanted to buy Bush's high risk Harken stock?
In 1990, when George W. Bush was on the board of directors at Harken, he was told that the company was going under. He sold over 200,000 shares of Harken stock weeks before the value plummeted. The overall gain was $848,560; roughly $600,000 of this went towards buying a piece of the Texas Rangers. So, who doled out $850k for a company that could potentially go under at any point directly after the sale? A search of company memos returned only one name, and they can't be sure to whom or what it refers- naturally, the name is "Lee."

http://www.utwatch.org/utimco/bass.html

[Joanne98]

9. Robert Bass Oakhill Capital

Oak Hill Capital is a private equity firm headquartered in Stamford, Connecticut with more than $4.1 billion of committed capital from leading entrepreneurs, endowments, foundations, corporations, pension funds and global financial institutions. Robert Bass is the lead investor.

Over a period of nearly twenty years, Oak Hill Capital has invested in more than fifty significant private equity transactions, including Ariel, Genpact, The Container Store, Butler Animal Health Supply, EXLService, Progressive Moulded Products, TravelCenters of America, WideOpenWest, Blackboard, American Savings Bank (Washington Mutual), Bell & Howell (Proquest), Oreck Corporation, Vertex Data Science, eGain and Wometco Cable Corporation.

Oak Hill Capital is one of several Oak Hill partnerships, each of which has an independent management team. These Oak Hill partnerships comprise over $18 billion of investment capital across multiple asset classes, including private equity, special situations, high yield and bank debt, venture capital, real estate and a public equity exchange fund.<1>

Entertainment
The company owns 9 television stations formerly owned by The New York Times Company. Those stations, which are operated under a holding company known as Local TV, are as follows:

DMA Rank Market Station ... Channel (DT) Network
42. Norfolk WTKR-TV 3 (40) CBS
44. Memphis WREG 3 (28) CBS
46. Oklahoma City KFOR 4 (27) NBC
KAUT 43 (40) MyNetworkTV
53. Scranton / Wilkes-Barre WNEP 16 (49) ABC
73. Des Moines WHO 13 (19) NBC
84. Huntsville/Decatur WHNT 19 (59) CBS
96. Moline / Rock Island / Davenport WQAD 8 (38) ABC
102. Fort Smith / Fayetteville KFSM 5 (18) CBS

Oak Hill is also slated to buy the following Fox network affiliates from News Corporation for $1.1 billion, a deal announced December 22, 2007 <4>:

DMA Rank City of License/Market Station ... Channel (DT) Owned by News
Corporation Since
17. Cleveland - Akron WJW-TV 8 (31) 1997
18. Denver KDVR 31 (32) 1993
21. St. Louis KTVI 2 (43) 1997
31. Kansas City, Missouri WDAF-TV 4 (34) 1997
34. Milwaukee WITI-TV 6 (33) 1997
35. Salt Lake City KSTU 13 (28) 1990
40. Birmingham - Tuscaloosa, AL WBRC-TV 6 (50) 1995
46. High Point - Greensboro -
Winston-Salem, N.C. WGHP 8 (35)