…that I nervously walked down a narrow street called Shoe Lane, in an improbably wide-shouldered Hugo Boss suit, between the Fleet Street offices of the Daily Telegraph and the Daily Express, past the loading bays with trucks depositing huge rolls of newsprint to their then-hungry print shops at the rear. I was headed for a job interview at the London bureau of Dow Jones and the Wall Street Journal.
As they showed me what the junior editing job entailed, the little green Telerate price screens were showing the largest one-day fall in the history of the stock market. This was Black Monday, 19th October 1987: a very big black swan indeed. It was to be my first proper job in journalism, and this day marked one heck of a baptism of fire: my first exposure to the wild randomness that would define the major points of my career.
Fast forward 14 years to the afternoon of the 11th of September 2001, and I was sitting in a Mies Van de Rohe chair behind a beautiful, elliptically-windowed meeting room in an open-plan bureau that my colleagues at BridgeNews and I had created by gutting the messy, labyrinthine offices of the aforementioned Telerate in Fetter Lane. We overlooked Gough Square and the house of Dr Samuel Johnson. This was only a few hundred feet from that DJ/WSJ bureau where I started, and about the same distance from the Fleet Street base of Knight-Ridder (where I was Bureau Chief for six years) and 85 Fleet Street (home to Reuters: always the competition).
The purpose of that 9/11 conference call had originally been to determine that we would shut the office for good that week. Everyone at Bridge had been served their notice, including myself, save a few staff in Europe subject to more complex employment frameworks. The private equity roller-coaster that had created the world’s second largest financial information company had been thrown off the tracks by a little-known (to us) Texas-based fund-management firm called Highland Capital Management, in spite of the stated desire of some of the bluest-chip names on Wall Street (led by Goldman Sachs) that they wanted the truck to keep rolling, with my job and 600 other journalists jostling along in the back. To cut a long story short, the major assets and customer base had been sold to Reuters who did not need the news agency/journalists attached.
Of course, within a few seconds the conference call was turned into a discussion of events unfolding in the building adjacent to our New York colleagues in the World Financial Center. A few seconds more and they were instructed to evacuate.
A wild ride — involving two corporate auctions, several mergers and a Chapter 7/11 bankruptcy process — was coming to a rather untidy and completely unexpected end. In the short run, the mess that was 9/11 meant it took us another week to shut down and wind up. Of little consequence in macro circumstances, but students of the history of the debt markets which are now imploding could argue that Highland’s action was an inflection point of which very little, if anything, was made at the time. See the full story linked to below.
Incidentally, Telerate had once enjoyed some form of parity with Reuters in global financial market information, but had been picked up by my private equity masters some years before after being milked dry of cash by Dow Jones, Inc. No doubt it had funded a few too many expense account lunches in the putative bastion of free market capitalism.
To bring us fully up to date, Dow Jones has just now given up the ghost and is selling itself to Rupert Murdoch’s News Corporation. Murdoch too is the principal reason why those newsprint wagons no longer trundle down Shoe Lane, and why the two newspaper offices are now inhabited by investment bank Goldman Sachs. One suspects that, aside from Google, Mr Murdoch is likely to be one of the main agencies causing the trundling of far fewer newsprint wagons in the future.
And what of Highland Capital? It was not apparent at the time that Highland Capital’s action marked a significant change in investor behaviour. For much more on that I do recommend that you read this story here. The Highland action that knackered the hack was a corporate black swan, as Institutional Investor makes clear:-
In January 2001 the firm forced financial news provider Bridge Information Systems into bankruptcy after it violated a cash flow covenant on an $800 million bank loan. Bridge’s banks and its owner, buyout firm Welsh, Carson, Anderson & Stowe, wanted to restructure the debt and inject $100 million into the company, giving loan holders just 15 to 20 cents on the dollar. Lenders had to vote unanimously to keep the company out of bankruptcy; Highland, which owned less than 8 percent of the loan, argued that creditors would recover far more if Bridge were sold. Highland filed for an involuntary Chapter 7 bankruptcy in February 2001, effectively putting the company on the auction block. In September, Reuters bought Bridge for $373 million. Highland and other lenders recovered every dime of their principal.
The Bridge deal put Highland on the map as a force in leveraged lending, and the banks and LBO firms that had ruled the market were none too happy. In response to Highland’s Chapter 7 filing, Welsh Carson said in a statement that it was “truly unfortunate that the unilateral act of a single creditor representing less than 8 percent of the senior debt has disrupted the process of reorganization.” The big East Coast banks looked down their noses at the Texas upstart that was upending the long-established order of things.
June  a Highland-led group of investors met with Standard & Poor’s and pushed the debt-rating agency to crack down on so-called ‘covenant-lite’ loans, which lack traditional protections that let lenders force flagging companies into bankruptcy and had become all-too-routine in LBO financing. S&P subsequently warned that such loans would return less than conventional ones in bankruptcy reorganizations.
Highland’s lobbying of S&P and its summer buying strike, along with growing worries about credit quality, helped to grind the leveraged-loan market to a standstill last month. That left Wall Street banks with some $300 billion in LBO loan commitments they couldn’t syndicate to investors and likely will have to sell on the cheap to trim their credit exposure. That’s an outcome that has Highland’s opportunistic partners salivating.
So if you’ve read my story about the allegedly unforeseen nature of the August credit crunch and the woes of Northern Rock (Magoo Finance I, II, and III), you’ll understand a little better why I’ve been so sceptical, and why I have a perhaps unhealthy and overly developed interest in black swan events.
But, whoops, I’m doing it again! I promised to lay off the hubris, so here’s some more fish-slapping, including a Terry Gilliam animation which I feel carries some relevance for anyone who has been through the corporate merger/acquisition process more than once. Please purchase The Complete Monty Python’s 16 Ton Megaset here to keep the copyright lawyers smiling along with us all:-
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