Transcript Slide 1
The D. E. Shaw Group:
Direct Capital
January 2009
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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
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Firm Investment Activities
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.
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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
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Global Reach, Local Presence
Direct Capital Activities
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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
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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
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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 2nd lien notes and $1mm co-invest equity in oilfield service company
$25mm control equity investment in refined products terminalling and storage business
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Keys to Survival (the basics still work)
Understand the term Commodity Cycle… know that history repeats itself
Prepare for a downturn in good times
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Modest leverage
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Risk management
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Run a downside case, prepare for it
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Run conservative budgets, the strip is a guess… guess low
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Operate / control capex
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Dry powder / cash is king
Buy at low prices; drill in high prices
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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
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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
– 2nd 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
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Recent Investor’s Business Daily Cartoon
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IPAA Version – Historical View
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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