Explaining Southern California's economy

After Fender canceled its IPO, will Carl's Jr.'s hold up?

Will this be another Fender? Or will private equity make it to the IPO finish line?

There's still an IPO market out there, folks, even after Facebook's train wreck with the public-offering process (and subsequent struggles with the stock market). Apollo Global Management, the private-equity group that owns, through an affiliate, Carl's Jr. and Hardee's parent CKE has just priced an IPO for the company at between $14 and $16 a share, according to LATimes.

Apollo took CKE private in 2010 for about $700 billion and plans to sell 13.3 million shares, which would raise somewhat less than the $230 million than Reuters reported on back in June, a month after CKE filed its IPO plans with the SEC with the intention of raising $100 million. It appears that the so-called "road show" for CKE, when investment bankers including Morgan Stanley and Goldman Sachs drum up investors, has attracted more interest in the Southern California-based company than was originally expected.


Rather Short Book Review: Philip Coggan's 'Paper Promises'


So much debt. So little time left.

Philip Coggan is a very fine financial journalist with a real gift for providing clarity on a dense subjects and reducing the complex sweep of history to easier-to-understand structures. In the "Buttonwood" column he writes for The Economist, he routinely accomplishes this feat. In "Paper Promises: Debt, Money, and the New World Order," he ramps up that habit, taking a long look at the legacy of relationships between debtors and creditors while also offering a warning about the next major global financial crisis. (Hint: It involves China and the U.S.)

He starts off with a bang:

The massive debts accumulated over the last forty years can't be paid in full, and they won't be paid. The debt crises Of Greece, Ireland and Portugal are just the start. The economic outlook for some countries, particularly in Europe, is weak thanks to deteriorating demographics: the number of retirees is growing relative the number of number of workers. As a result, these countries' incomes wil not grow fast enough to service their debts. Either there will be foramal defaults...or there will be effective defaults....Economics and politics for the next decade and beyond will be dominated by this issue, as social classes and countries debate where the brunt of the pain will fall.


California's debt crisis: We'll figure something out

Mercer 10006

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The California State flag.

California just kicked off a $2 billion municipal bond offering that will run through tomorrow. So far, it's looking pretty solid, according to the Wall Street Journal/Dow Jones Newswires, with $550 million sold so far to retail investors. Institutional investors will get their shot later this week. 

The bond sale highlights the paradox of the Golden State:

California's bond offering comes after Standard & Poor's sweetened its outlook on the state to positive from stable earlier this month. At the time, the ratings agency said it could upgrade the Golden State, depending on its ability to better align its cash performance and budget assumptions.

California is "the most heavily indebted state, but it also has the biggest economy," said Paul Montaquila, vice president of fixed-income trading at San Francisco-based Bank of the West, whose capital markets group has $10 billion of total assets under management. "For as bad as things may seem to be, the state always figures something out."

Montaquila said his firm's clients, which range from ultra high-net-worth individuals to mid-tier corporations, placed an order for California bonds. He added that the state's debt offered better yields than other similarly maturing fixed-income assets, like Treasurys.


Banking on a Moody's credit downgrade of Morgan Stanley

Morgan Stanley Reports Their Quarterly Profits Fell 48 Percent In First Quarter

Ramin Talaie/Getty Images

NEW YORK, NY - APRIL 21: Pedestrians cross the street by the Morgan Stanley building in Times Square April 21, 2011 in New York City. Morgan Stanley profits fell 48 percent In the first quarter of 2011. (Photo by Ramin Talaie/Getty Images)

How do you think it would feel to be cut not one, not two, but three levels on your credit score? All at once? 

If you answered, "Not too good!" then you're in the same boat as Morgan Stanley, one of the last two big independent U.S. investment banks (the other one is Goldman Sachs, and neither are as proud as they once were, after converting themselves to bank holding companies during the financial crisis so that they could get more money from the government). Moody's, one of the three main rating agencies, has said that it may knock Morgan down three notches. It may take other banks, such as Goldman, down two.

This is from Bloomberg:

The potential downgrades, which may raise borrowing costs and force banks to increase collateral, put the ratings company at odds with bond investors, who are sticking with bets that new capital rules and trading limits will make the financial firms safer in the long run. Funding costs have climbed for banks worldwide as Greece’s debt woes roil markets.

“In the next two years, these big banks will be less robust than they used to be, that’s for sure,” Jim Antos, a Hong Kong-based financial analyst at Mizuho Securities Co., said by telephone. “For any bank that has to raise capital today, it’s already very difficult. This makes it just that much more expensive and difficult.”