No Boyd LBO

When Harrah's, MGM and finally Station casinos got buyout offers Boyd Casinos (BYD) spiked 15% on speculation that it would be next. I thought it was unlikely and now, after rangebound trading for some time the MACD is crossing down and the stock has begun to fall. Moreover the CDS has tightened up - not a sign of a likely LBO.

Strategy: Short @ market, put an order to cover if it goes up to 47, or buy a call. Otherwise if it falls then cover after the drop, which should be at $42 or below.

CBS LBO Arb

There are rumors in the bond market that CBS may get bought out. The bonds are already showing this, but the equity hasn’t been affected yet, so it's time to act.

This is CBS’ Credit Default Swap (CDS) curve. It widened over 25% yesterday - which means the bond market perceives a 25% increase in chance of default. This can occur for several reasons, one of them being when a company is about to undergo a leveraged buyout as the buyback of equity is financed with high-yield, less creditworthy “junk” bonds. Given that there have been no other credit-related rumors I suspect it’s an LBO signal.

Now looking at the equity we see that it has been very strong in November and the trend is continuing. The lower graph shows that the MACD just crossed up over the signal. What this means is that there’s positive momentum on the equity that should continue. Nevertheless we haven’t seen a jump – perhaps because CBS investors are mostly cautious institutionals and want to wait to buy before there is a more confirmed rumor (or they may know something I don’t). In either case I‘d still buy at $32 as your risk/return is positively skewed – CBS won’t suddenly fall 20% like some penny stock as it is too big, but if there’s a buyout announced the equity should go up about 10-15%%. Just make sure to have a trailing stop of about 5% and you will be safe. Buy some out of money puts if you want insurance.

I called it! Shell Offers to Cede Control. Of Sakhalin-2 to Gazprom

I’ve been saying that this would happen for several months now. It should have been obvious from Gazprom's actions. Why else would they have been building pipelines without devloping new fields and reserves? Shell has finally buckled as its kneecaps have been bashed by the mighty hammer and its head cleanly cut off by the sickle of Kremlin/Gazprom/Putin/Mafia. Now Gazprom can take a gargantuan new nearly finished field and get all the capacity it needs to deliver to China, Europe and maybe even its own starving people. Nobody can stop the behemoth, not until 2008 when Putin steps down, anyways.

Shell Offers to Cede Control. Of Sakhalin-2 to Gazprom
By GUY CHAZAN and GREG WALTERSDecember 11, 2006 10:18 a.m.
Royal Dutch Shell PLC, succumbing to months of pressure from the Russian government, has proposed ceding control of the $20 billion Sakhalin-2 project to Russia's state-run gas monopoly, OAO Gazprom, an official close to the situation said.
The move shows Shell scrambling to rescue a project that has hit numerous roadblocks in recent months, including threats by Russian officials to withdraw a key permit over alleged environmental violations.
The pressure was seen as reflecting Russian anger at the cost overruns at the project, the biggest single foreign investment in Russia, and comes amid intensifying efforts by the Kremlin to dominate the country's oil and gas sector.
Gazprom said Shell Chief Executive Jeroen van der Veer met Gazprom CEO Alexei Miller and Russian Energy Minister Viktor Khristenko in Moscow last Friday to discuss Sakhalin-2, and that Shell had put forward new proposals on the project to Gazprom. Neither company would give details of the proposals. A spokeswoman for the Energy Minister declined to comment.
Mr. Khristenko will hold a press conference Tuesday in Moscow, the ministry said, during which he will answer questions about Sakhalin-2.
Gazprom and Shell reached an agreement in principle in 2005 that Gazprom would take a 25% stake in Sakhalin Energy, which is 55% controlled by Shell. Gazprom had since publicly denied it was seeking a larger stake in the company. Shortly after the Gazprom and Shell deal was reached last year, Sakhalin Energy announced its projected costs would nearly double for Sakhalin-2, prompting Gazprom to say it couldn't make a final commitment on entering Sakhalin-2 until the cost of the project was confirmed.
Sakhalin-2, said by Sakhalin Energy to be the world's largest integrated oil and gas project, is developing oil and natural gas reserves off the coast of Sakhalin Island in Russia's Pacific Coast north of Japan.Japanese partners Mitsui & Co. Ltd. and Mitsubishi Corp. own 25% and 20% of Sakhalin Energy, respectively.

Kenny G Indebted

Citadel issues $500M of BBB-rated debt in the first-ever hedge fund offering.

Not to diss Ken Griffin, but… what the fuck Citadel? Well it's still a smarter move than the Fortress IPO - at least retail investors won't be buying Citadel debentures. Question for thought - could and should institutional investors in the fund buy debt as a hedge? Better yet - buy protection if we ever have hedge fund credit derivatives. I wouldn't mind doing some curve trades on those in the right climate.

Also, I love how no matter what the PMs think about the issue nobody bought in. Good call, too. Only 190bps over Treasuries for a hedge fund? Come on! At least the rating agencies were kind and gave it a BBB rating. Generous because Citadel's Kensigton fund has $9.5b AUM (that’s ~74% of all assets) is making heavy, and apparently rather volatile, energy bets (Amaranth, Blackrock anyone?). All in all their income this year was about 9.5% of AUM by my back-of-the-envelope calculations, which isn’t bad at all, but not spectacular either.

Anyways – now we have a hedge fund IPO and a bond offering maybe we'll see funds shorting each other... it'll be hedgemonium!