Return of the LBO

Blackstone Rises as LBOs Show Signs of a Comeback (Update2)
By Jason Kelly

Oct. 5 (Bloomberg) -- Blackstone Group LP's shares climbed at almost five times the pace of the Standard & Poor's 500 Index in the past month on signs leveraged buyout firms will resume making acquisitions.

Blackstone, the New York-based manager of the world's largest buyout fund, has gained 35 percent since falling to a record low of $21.54 on Sept. 7. Fortress Investment Group LLC, which bottomed out on the same day, has advanced 40 percent.

Both companies have outpaced the 7.3 percent increase by the S&P 500 as investors return to buy leveraged loans and bonds needed to fund a record $739 billion in private-equity deals announced this year. After a two-month lull caused by a global sell-off of subprime mortgage bonds, companies including First Data Corp. and Allison Transmission have sold LBO debt, chipping away at a backlog of $300 billion in financing committed by investment banks, according to Bank of America Corp.

``There's an expectation of normalcy back in the market,'' said Geoff Bobroff, an independent investment consultant in East Greenwich, Rhode Island. ``They've raised a fair amount of money in the past year and it's burning a hole in their pocket.''

Blackstone rose $1.50, or 5.4 percent, to $29.08 at 4:17 p.m. in New York Stock Exchange composite trading. The company, run by Stephen Schwarzman, went public at $31 a share in June.

Fortress rose 32 cents, or 1.4 percent, to $23.55. The New York-based manager of hedge funds and private equity went public in February at $18.50.

TXU Loans
Bankers for TXU Corp., the Dallas-based power producer that agreed to a buyout by Kohlberg Kravis Roberts & Co. and TPG Inc., may begin selling at least $5 billion in loans to fund that deal, according to people familiar with the process.

KKR, based in New York, filed for its own public offering July 3. The firm, founded by Henry Kravis and George Roberts, is seeking to raise about $1.25 billion in an IPO.

Blackstone in August raised a $21.7 billion fund, its fifth and the industry's largest. Acquisitions this year by the firm, founded in 1985, included Hilton Hotels Corp. and Alliance Data Systems Corp.

Six of the seven analysts who rate Blackstone shares suggest buying the stock. One, Douglas Sipkin of Wachovia Securities, rates Blackstone ``market perform,'' the equivalent of a hold recommendation.