Here are the basic facts: In the first half of 2013, Blackstone affiliate GSO Capital Partners purchased debt and credit default swaps in Codere SA, a listed Spanish company that operates betting parlors, online gambling sites and other gaming activities. GSO and another firm later purchased a €100 bank loan (via secondary markets) that Codere already had on the books, and then convinced Codere to delay repayment on the debt related to the aforementioned credit default swaps. That delay triggered the CDS, resulting in upwards of $18.7 million in profit for GSO.
Or, as Jon Stewart put it, they used the Goodfellas trick of taking out an insurance policy on a restaurant before burning it to the ground.
The reality, however, may be a bit more complicated.
Spanish law required that 75% of Codere bondholders agree to restructure the bank loans, which originally were designed to mature at the end of June. Unfortunately, a large percentage of those bondholders also held credit default swaps -- just like Blackstone did -- via a so-called basis plays that actually pay more for defaults than for debt repayment in full. What that meant was that the bondholders had little interest in letting Blackstone and its partner push back the maturities, thus leaving the firms with two options:
In other words, Blackstone would have made money off the CDS no matter what. And, by providing a lifeline, the firm could charitably be viewed as the fireman rather than as the arsonist. In a statement, firm spokesman Peter Rose argued it thusly:
"First, Blackstone thinks that Jon Stewart is the funniest guy on TV. But unlike the wise guys in the clip he used... we put money into Codere to save it from bankruptcy and keep it running when no one else would do so. Codere (working with us and Perella, who were Codere's advisers) had to trigger the credit default swaps, as it was the only way to compel certain bondholders to negotiate. Absent that, Codere may have had to liquidate.
So who benefited from all this?
• The company who avoided a liquidation
• The employees who maintained their jobs
• The company's suppliers who continued to receive uninterrupted payment s for their services
• Other creditors who received their coupon payments from the money we infused into the Company
• GSO and its investors who were compensated for their risk capital
That is not to say that there not losers in this deal, but not the ones Jon Stewart points to. The losers were sophisticated hedge funds using credit default swaps to bet on the timing of a default. Unlike Blackstone, who invested directly into Codere, these financial investors were not aligned with the interests of Codere, but instead through their use of credit default swaps, were betting on when the Company would default. They were like gamblers betting on the over/under spread, but having no interest in the outcome of the game."
To be sure, Codere remains a company in deep trouble. Revenue is on the decline, and last year it experienced a $104 million loss after three straight years of profitability (this year is expected to be even worse). And Blackstone perhaps could have worked harder to get bondholders to the table, or figured out some way to roll its CDS profits directly into the company (or perhaps tied them to the extended debt, for which there is not yet a CDS market). Or used its connections to find another lender that didn't also have CDS exposure.
But the move wasn't quite as dastardly as The Daily Show made it out to be -- something that perhaps the firm would have communicated to Stewart and Co. had it been asked for comment before airing (Rose says it was not).
Below is the segment. And, yes, it is funny -- including shots taken at media outlets for not covering this in the first place (mea culpa -- I actually hadn't seen the Bloomberg piece until today).
Congress yesterday voted to gut oversight regulations on private equity, and in the process displayed remarkable ignorance.
FORTUNE -- The U.S. House of Representatives yesterday voted to gut the only real piece of private equity regulation contained in Dodd-Frank: A requirement that firms with more than $150 million in assets under management register as investment advisors with the SEC. Technically a bipartisan vote of 254-159, with 36 Democrats joining 218 Republicans.
For MOREDan Primack - Dec 5, 2013 10:45 AM ET
Rosanne Zimmerman leaves private equity firm after 15-year run.
FORTUNE -- Rosanne Zimmerman has stepped down as a managing director with private equity firm Warburg Pincus, Fortune has learned.
Zimmerman joined Warburg Pincus in 1998 to focus on fundraising and investor relations, and was the firm's primary contact with large limited partners like the New Jersey State Investment Council.
She previously had worked for GE Capital's structured finance group, and is a steering committee member of MOREDan Primack - Dec 3, 2013 4:09 PM ET
Credit Suisse continues to shed private equity assets.
FORTUNE -- Credit Suisse (CS) has agreed to sell its remaining limited partnership interests in DLJ Merchant Banking Partners, a private equity group that it originally acquired via the bank's 2000 purchase of Donaldson, Lufkin & Jenrette. The buyer is Coller Capital, a private equity firm focused on secondary transactions.
Bloomberg News had reported on negotiations back in July, and yesterday the Federal Trade Commission disclosed MOREDan Primack - Dec 3, 2013 2:08 PM ET
In August, Thoma Bravo bought Digital Insight for around $1 billion. Yesterday, it agreed to sell it for $1.65 billion.
FORTUNE -- NCR Corp. yesterday announced agreed to acquire Digital Insight Corp., a Silicon Valley provider of online and mobile banking solutions, from private equity firm Thoma Bravo for $1.65 billion. Yes, the same Digital Insight that Thoma Bravo acquired a scant three months ago from Intuit for $1.065 billion (including MOREDan Primack - Dec 3, 2013 11:27 AM ET
Oppenheimer & Co. wants to put its private equity scandal behind it. Well, sort of.
FORTUNE -- We're written a lot over the past couple of years about how a private equity unit of Oppenheimer & Co. once inflated the valuation of one of its investments, in order to help market a new fund. The SEC later charged Oppenheimer with misleading investors, and the firm agreed to pay a penalty, return money to investors and be censured. MOREDan Primack - Dec 2, 2013 2:22 PM ET
A whistleblower has accused private equity firms of violating securities laws. What does it mean?
FORTUNE -- For decades, private equity funds have collected "transaction fees" from their portfolio companies, often related to mergers or initial public offerings. Sometimes they share with their investors, sometimes they don't. Sometimes the fees are for tens of thousands of dollars, sometimes for tens of millions. Either way, the practice gooses positive returns and lowers the MOREDan Primack - Dec 2, 2013 12:14 PM ET
To get deals in your inbox each morning, sign up for our Term Sheet newsletterVENTURE CAPITAL DEALS
Xagenic Inc., a Toronto-based developer of a lab-free molecular diagnostic platform, has raised C$20 million in Series B funding. Domain Associates led the round, and was joined by return backers CTI Life Sciences Fund and the Ontario Emerging Technologies Fund. www.xagenic.com
MetaPack, a UK-based provider of delivery management solutions for retailers, has raised £20 million in growth equity funding MOREDan Primack - Dec 2, 2013 11:10 AM ET
Private equity firm targets $600 million, but likely will raise much more.
FORTUNE -- Private equity firm Altamont Capital Partners is beginning to raise its second fund, Fortune has learned. Its target is $600 million, but expectations are that it will either meet or exceed its $750 million soft cap.
Palo Alto-based Altamont was formed in mid-2010 by three former partners of Golden Gate Capital, including co-founder Jesse Rogers. It focuses on middle-market companies MOREDan Primack - Nov 26, 2013 10:48 AM ET
Bain Capital is offering investors two fee structures for its new European private equity fund.
FORTUNE -- Bain Capital recently began raising around €3.5 billion for its fourth European private equity fund, and Fortune has learned that the firm once again is giving investors a choice of fee structures. Either:(a) 1.75% management fee, 20% carried interest and a 7% preferred return; or (b) 0.75% management fee, 30% carried interest and no preferred return.
When MOREDan Primack - Nov 25, 2013 11:28 AM ET
|Someone bought a $100,000 Tesla with Bitcoins|
|Economy is improving but why doesn't it feel that way?|
|Where should you put your money now?|
|2 million Facebook, Gmail and Twitter passwords stolen in massive hack|
|Stocks pop after jobs report|