Triangle

"Peltz appeared to share little of his bankers’ anxiety. In mid-1985 he purchased through Triangle a $ 2 million apartment in Paris. “Mike made him put it on the market,” commented one Drexel investment banker, “which was the right thing to do. We have a responsibility to our bondholders. What’s he going out and spending the company’s money like that for, when he’s got this mountain of debt?” By the beginning of 1986, however, the first good news was in (and Peltz took the apartment, still unsold, off the market). National Can had had a record year in 1985; its earnings (for April 17 through December) were $ 162 million, up from $ 68,775 the year before; Triangle’s stock had quadrupled, making it the third-best performer on the New York Stock Exchange. With interest rates down, Peltz and May were refinancing the company’s acquisition debt, meaning they were paying down that debt and replacing it with newer debt at lower interest rates. And their combined personal stakes in the company had gone from a market value of roughly $ 8–9 million when they purchased the controlling block of Triangle stock, in 1983, to about $ 34 million. Adding in a premium for control, which would have been present if they were to sell their block, it was now worth more than $ 40 million."

"“Coastal was a big company, with significant assets. It wasn’t so leveraged. Triangle was a company with a fifty-million-dollar net worth. This was the first of the superleveraged buyouts to go through.” The acquisition of National Can cost $ 465 million. Triangle contributed $ 70 million as equity, to which another $ 30 million was added through its sale (underwritten by Drexel) of preferred stock; the debt portion layered above that consisted of $ 365 million raised with junk bonds by Drexel. And after the deal closed, Drexel raised another $ 200 million from junk bonds, in order to pay down National Can’s preexisting bank debt. So the total debt of National Can, once the $ 200 million was added to the preceding $ 365 million, was $ 565 million. Five hundred sixty-five million dollars was a towering debt load for $ 100 million of equity to carry. And Peltz pointed out that even the $ 70 million from Triangle, at the equity base, came from its earlier offering of junk. “We put the hundred million in the sub [the subsidiary, Triangle Acquisition Corporation, formed for the buyout]. But it was all debt! We called it equity here [at Triangle Acquisition Corporation], but it was debt over here [at Triangle]. Do you understand the leverage in this deal? It was eleven to one!"

"In April 1983, Peltz and May (in a two-thirds/ one-third partnership) purchased Goldberg’s block, 29 percent of Triangle’s shares, for about $ 14 million. Two million was lent to Trafalgar; twelve million was lent to Peltz and May, from Manufacturers Hanover and Bankers Trust. Bankers Trust took the stock as collateral; Manufacturers Hanover took Peltz’s and May’s signatures and a lien on Peltz’s house in Quogue. Peltz recalled that it took all his powers of persuasion at the bank, and that when he finally walked out of Bill Rykman’s office at Manufacturers Hanover with the certified check in hand and met Goldberg, Goldberg told him that he couldn’t do the deal after all, because the Triangle board would not approve the change of control. “I literally ran the check under his nose, the spittle started to come out of his mouth, he was dying to put his arms around the money,” Peltz declared. “I said, ‘Let me try, let me talk to the board, let me show them I don’t have horns.’"

"Here Peltz—who oversees the portfolio—played an interest arbitrage. Triangle pays an after-tax cost of roughly 5 percent on its debt (because interest payments are tax-deductible), while earning roughly 8 percent after tax on junk preferred (for a corporate holder of preferred stock, only 15 percent of the dividends earned are subject to federal income taxation—so 85 percent of those dividends are tax-free to corporations). According to Peltz, 20 percent of Triangle’s income comes from its investment portfolio."

"In April 1983, Peltz and May (in a two-thirds/one-third partnership) purchased Goldberg’s block, 29 percent of Triangle’s shares, for about $14 million. Two million was lent to Trafalgar; twelve million was lent to Peltz and May, from Manufacturers Hanover and Bankers Trust. Bankers Trust took the stock as collateral; Manufacturers Hanover took Peltz’s and May’s signatures and a lien on Peltz’s house in Quogue. Peltz recalled that it took all his powers of persuasion at the bank, and that when he finally walked out of Bill Rykman’s office at Manufacturers Hanover with the certified check in hand and met Goldberg, Goldberg told him that he couldn’t do the deal after all, because the Triangle board would not approve the change of control. “I literally ran the check under his nose, the spittle started to come out of his mouth, he was dying to put his arms around the money,” Peltz declared. “I said, ‘Let me try, let me talk to the board, let me show them I don’t have horns.’ ”"

"Peltz appeared to share little of his bankers’ anxiety. In mid-1985 he purchased through Triangle a $2 million apartment in Paris. “Mike made him put it on the market,” commented one Drexel investment banker, “which was the right thing to do. We have a responsibility to our bondholders. What’s he going out and spending the company’s money like that for, when he’s got this mountain of debt?” By the beginning of 1986, however, the first good news was in (and Peltz took the apartment, still unsold, off the market). National Can had had a record year in 1985; its earnings (for April 17 through December) were $162 million, up from $68,775 the year before; Triangle’s stock had quadrupled, making it the third-best performer on the New York Stock Exchange. With interest rates down, Peltz and May were refinancing the company’s acquisition debt, meaning they were paying down that debt and replacing it with newer debt at lower interest rates. And their combined personal stakes in the company had gone from a market value of roughly $8–9 million when they purchased the controlling block of Triangle stock, in 1983, to about $34 million. Adding in a premium for control, which would have been present if they were to sell their block, it was now worth more than $40 million."

"“Coastal was a big company, with significant assets. It wasn’t so leveraged. Triangle was a company with a fifty-million-dollar net worth. This was the first of the superleveraged buyouts to go through.” The acquisition of National Can cost $465 million. Triangle contributed $70 million as equity, to which another $30 million was added through its sale (underwritten by Drexel) of preferred stock; the debt portion layered above that consisted of $365 million raised with junk bonds by Drexel. And after the deal closed, Drexel raised another $200 million from junk bonds, in order to pay down National Can’s preexisting bank debt. So the total debt of National Can, once the $200 million was added to the preceding $365 million, was $565 million. Five hundred sixty-five million dollars was a towering debt load for $100 million of equity to carry. And Peltz pointed out that even the $70 million from Triangle, at the equity base, came from its earlier offering of junk. “We put the hundred million in the sub [the subsidiary, Triangle Acquisition Corporation, formed for the buyout]. But it was all debt! We called it equity here [at Triangle Acquisition Corporation], but it was debt over here [at Triangle]. Do you understand the leverage in this deal? It was eleven to one!"

"Here Peltz—who oversees the portfolio—played an interest arbitrage. Triangle pays an after-tax cost of roughly 5 percent on its debt (because interest payments are tax-deductible), while earning roughly 8 percent after tax on junk preferred (for a corporate holder of preferred stock, only 15 percent of the dividends earned are subject to federal income taxation—so 85 percent of those dividends are tax-free to corporations). According to Peltz, 20 percent of Triangle’s income comes from its investment portfolio."

"Société Générale, Péchiney, Triangle..."