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January 2009 The D. E. Shaw Group: Direct Capital.

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Presentation on theme: "January 2009 The D. E. Shaw Group: Direct Capital."— Presentation transcript:

1 January 2009 The D. E. Shaw Group: Direct Capital

2 About the D. E. Shaw Group  Global investment and technology development firm founded in 1988  Approximately $30 billion in aggregate investment capital as of January 1, 2009  Headquartered in New York, with offices in North America, Europe, and Asia  Unusually strong emphasis on quality and depth of personnel –More than 1,600 employees worldwide, about half of whom are outside the United States –Approximately 130 Ph.D.’s, and a number of Rhodes, Fulbright, and Marshall Scholars  Deliberate focus on achieving attractive risk-adjusted returns for investors through a multidisciplinary approach 2

3 Firm Investment Activities 3 In the future, the firm may be engaged in additional (or other) areas of activity, which may be similar or dissimilar to the areas of activity above.

4 Direct Capital Activities: Overview  D. E. Shaw Direct Capital provides capital to middle market corporate clients through a process that emphasizes flexible deal structures, rapid turnarounds, straightforward negotiations, and a proven ability to close  The firm’s Direct Capital Activities unit serves clients across a variety of industries throughout North America and Western Europe, with a particular focus on the energy, business services, and financial services sectors  We provide capital throughout the capital structure, including senior debt, high-yield debt, mezzanine debt, convertible debt, and preferred and common equity  We have built long-term, recurring business relationships with management teams, lending institutions, financial sponsors, and intermediaries to provide capital solutions for the following purposes: –Acquisitions –Leveraged buyouts –Recapitalizations –Growth opportunities –Distressed or turnaround solutions –Rescue finance –Bridge loans 4

5 Global Reach, Local Presence 5

6 Direct Capital Investment Profile  Ability to originate debt and equity investments, including senior debt, high-yield debt, mezzanine debt, convertible debt, and preferred and common equity  Focus on originated transactions rather than syndication or auction situations  Ability to be the single source for multiple levels of capital, or lead an individual tranche of debt or equity  Investment areas –Middle-market and small cap companies –Predominantly private issuers –Numerous industry sectors, with a particular focus on energy, and financial services –North America and Western Europe  Investment sizes –Average deal size: $20 million to $50 million  Typical range of debt deals: $10 million to $100 million  Typical range of equity deals: $5 million to $50 million –Ability to invest $100 million or more in select opportunities 6

7 Direct Capital Energy Group  More than $1 billion invested since 2004 in 38 deals in the energy sector  Industry Sectors –Upstream –Energy Services & Equipment –Midstream –Downstream –Power / Renewables  Market Approach –Opportunistic / Flexible / Originated –“One-Stop” capital solutions –Focused on management and assets  Advantages –Flexibility / Creativity –Knowledgeable professionals with energy finance backgrounds –Knowledgeable professionals with restructuring/turnaround backgrounds 7

8 Sample Energy Transactions  $100mm note with warrants in California-based E&P company  $70mm senior secured development facility and $10mm equity investment in West Texas based E&P company  $34mm preferred equity in Gulf Coast E&P company  $70mm senior secured notes with warrants in a U.K. based gas storage/LNG project  $38.5mm senior secured notes in directional drilling company  $15mm 2 nd lien notes and $1mm co-invest equity in oilfield service company  $25mm control equity investment in refined products terminalling and storage business 8

9 Keys to Survival (the basics still work)  Understand the term Commodity Cycle… know that history repeats itself  Prepare for a downturn in good times – Modest leverage – Risk management – Run a downside case, prepare for it – Run conservative budgets, the strip is a guess… guess low – Operate / control capex – Dry powder / cash is king  Buy at low prices; drill in high prices – Fortunes are acquired at the bottom of a cycle and sold at the top (see first point)  Raise money when you can  Know your lenders / partners  Control your destiny 9

10 Marketplace Today  Financial Markets –Wall Street  New issue debt markets closed  IPO / equity markets closed –Senior bank market – supporting existing customers  Large syndicated loans not available  Smaller clubbed loans available in E&P –2 nd lien / mezzanine – limited availability (D. E. Shaw group)  Closed for large syndicates  Reduction in capital providers  Smaller privates may be available –Equity – available but waiting for right opportunities (D. E. Shaw group)  Supporting portfolio companies  Waiting for right buying opportunities  Some equity buying debt in secondary market  Financeable Transactions Today –Restructuring of balance sheets –Borrowing base paydowns –Liquidity capital for key capex programs with low F&D costs –Opportunistic transactions 10

11 11 Recent Investor’s Business Daily Cartoon

12 12 IPAA Version – Historical View

13 Positive Outlook for the Industry to Prosper  Learning from historical cycles  Most companies well positioned to manage a 12-18 month downturn  Rebound in supply / demand fundamentals should be shorter cycle  Risk management focus benefiting companies  Technical excellence in drilling, completion and operations continue to bolster industry  Global focus on the importance and needs of our energy markets should continue to make investment dollars available  The future is bright with opportunities to position the industry for value creation in 2009 and beyond 13

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