FT : ECB signals unconventional monetary policy plans

ECB signals unconventional monetary policy plans

Mario Draghi has signalled that the European Central Bank is getting ready to unleash new unconventional monetary policy in a bid to fight low inflation. Speaking after the spring meetings of the International Monetary Fund in Washington on Saturday, the ECB president said the strengthening of the euro "requires further monetary stimulus". His words came after he was pressurised all weekend over the dangers of allowing inflation to slide lower – by the IMF, finance ministers and central bank governors from all over the world. European central bankers have also used the weekend’s meetings in Washington to press the message that if the ECB takes further action, it is more likely to cut interest rates, possibly into negative territory, than commence a quantitative easing programme. In comments to journalists, Mr Draghi reiterated the ECB’s current economic forecasts which show a gradually recovering economy, but with stubbornly high unemployment that is pulling inflation lower. Focusing on the exchange rate, he reiterated that the ECB does not have a target level for the euro, but its appreciation over the past year "was important for price stability". "The strengthening of the exchange rate would require – to make our monetary stance equally accommodative – further monetary policy accommodation," Mr Draghi said, adding, "The strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for us". The comments mark the latest attempt by Mr Draghi to talk down the euro. But the single currency remains close to multiyear highs against the dollar despite increasingly dovish noises from the ECB president. It has risen 6 per cent against the dollar and 9 per cent against the yen in the past year. Mr Draghi believes the euro’s strength is one of the main factors in the disinflationary trend in the currency bloc which has left inflation at close to a quarter of the central bank’s target. The ECB president believes the euro’s appreciation has knocked between 0.4 and 0.5 percentage points off inflation over the past 18 months. Several members of the ECB’s governing council believe negative deposit rates, which effectively impose a tax on deposits parked at the central bank, are the best way to counter the strength of the single currency. Jens Weidmann, Bundesbank president and the council’s arch hawk, said last month negative rates were the best defence against a strong euro, signalling he would support this ahead of QE. His comments echo those of Erkki Liikanen, Bank of Finland governor, and Sabine Launtenschläger, an ECB executive board member who recently joined from the Bundesbank. Mr Draghi signalled earlier this month that the council will cut rates before launching any mass bond buying programme, often referred to as quantitative easing. The Bundesbank is unlikely to support more policy easing until the ECB unveils a fresh forecast for inflation in June, but a lower-than-expected number for inflation this month could prompt action before then. It wants to be convinced that Europe’s undershooting of its "below but close to 2 per cent" inflation target will be breached for a prolonged period. Inflation is expected to bounce this month to around 0.9 per cent, after falling to 0.5 per cent in March – its lowest level in more than four years.

(BFW) Symrise Offers to Buy All Shares of Diana Group

 BN 04/12 18:52 *SYMRISE PLANS TO INVEST ALMOST EUR 1.3B, SECURED FINANCING
 BN 04/12 18:52 *SYMRISE, DIANA JOINT ACTIVITIES SALES ALMOST EUR 2.3B
 BN 04/12 18:49 *KERISPER IS HOLDING ENTITY OF DIANA GROUP
 BN 04/12 18:49 *DEAL EPS ACCRETIVE FOR SYMRISE FROM 2015 ONWARD
 BN 04/12 18:49 *SYMRISE OFFERS TO BUY ALL SHARES OF KERISPER
 BN 04/12 18:49 *SYMRISE, DIANA OWNERS AGREED ON EXCLUSIVITY DURATION OF PROCESS
 BN 04/12 18:49 *DIANA OWNERS CAN ACCEPT OFFER AFTER FRENCH WORKER CONSULTATION
Symrise Offers to Buy All Shares of Diana Group
2014-04-12 18:59:39.663 GMT


By Mike Millard
     April 12 (Bloomberg) -- Symrise plans to invest almost EUR
1.3b, has secured bridge financing; plans to refinance by mix of
debt and equity financing, co. said in statement.
  * Symrise, Diana Group joint activities would generate pro
    forma sales of almost EUR 2.3b, Ebitda margin of more than
    20%
  * After French consultation process with workers’ council of
    Diana, owners of Diana Group can conclude share purchase
    agreement by accepting offer; parties agreed on exclusivity
    for the duration of process
  * Kerisper SAS is holding entity of Diana Group
  * NOTE: 3/10 Symrise Chief Considers Bid for Wild Flavors in
    Deal Pursuit {NSN N28DAV6S972C<Go>}
Link to statement: {NSN N3XJNI3PWT1D <go>}
Link to Company News:{SY1 GR <Equity> CN <GO>}

For Related News and Information:
First Word scrolling panel: {FIRST<GO>}
First Word newswire: {NH BFW<GO>}

To contact the editor responsible for this story:
Mike Millard at +1-206-262-4142 or
mmillard2@bloomberg.net

(BFW) Federal Reserve Should Continue Tapering of Purchases, IMFC Says

Federal Reserve Should Continue Tapering of Purchases, IMFC Says
2014-04-12 18:10:42.818 GMT


By Rebecca Christie and Sandrine Rastello
     April 12 (Bloomberg) -- “Continued tapering of asset
purchases by the Federal Reserve remains appropriate,” the
IMF’s International Monetary and Financial Committee says.
  * “The European Central Bank has maintained accommodative
    monetary conditions and should consider further action if
    low inflation becomes persistent,” IMFC says
  * IMFC communique available here:
http://www.imf.org/external/np/cm/2014/041214.htm

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporters on this story:
Rebecca Christie in Washington at +32-2-285-4307 or
rchristie4@bloomberg.net;
Sandrine Rastello in Washington at +1-202-654-4318 or
srastello@bloomberg.net
To contact the editor responsible for this story:
Alan Crawford at +49-30-70010-6237 or
acrawford6@bloomberg.net

(NY Post) SEC eyes test to shift away from shady ‘dark pools’

SEC eyes test to shift away from shady ‘dark pools’

US securities regulators are considering testing a proposed reform that could drive business to major stock exchanges and away from alternative trading venues such as “dark pools” that critics say may be hurting investors by reducing the quality of pricing.
The proposal, which has so far only been discussed among staff involved in policymaking at the US Securities and Exchange Commission, could limit how much trading occurs inside brokerages and in dark pools, according to people familiar with the matter.
The measure aims to address a concern among some regulators and academics about the increasing level of trading that happens outside of exchanges.
They say that the amount of trading being done in the “dark” means that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is, meaning that investors may not be getting the best prices for their trades.
The measure under consideration, known as a “trade-at” rule, has long been sought by exchanges like Nasdaq OMX and the New York Stock Exchange as a way to win back market share against off-exchange competitors such as Credit Suisse’s Crossfinder, one of the largest dark pools in the United States.
Modal Trigger

The talks within the SEC are at an early stage, and the pilot program would need to be approved by the full five-member commission, as part of an order instructing the public exchanges to carry out the study.
The initial trade-at test would only apply to a small number of thinly traded stocks, as part of a broader study exploring ways to incentivize more active trading in smaller and mid-sized company stocks, the sources said.
The results of any pilot would have to be effective enough to prompt the SEC to change its market rules.
SEC spokesman John Nester declined to comment on the agency’s plans.
Meaningfully better price
Currently, SEC rules require trades to be executed at the best available bid or offer, whether it be on a public exchange or in a dark pool, which doesn’t publicly disclose bids or offers.
A trade-at rule would force brokerages and dark pools to route trades to public exchanges, unless they can execute the trades at a meaningfully better price than available in a public market.
It is unclear how the SEC would define a meaningfully better price.
Dark pools were created to allow large investors to trade big blocs of trades without tipping off the broader market. Brokerages also offer similar dark markets internally to their clients.
Such venues have come under fresh scrutiny, along with high-speed traders, after bestselling author Michael Lewis recently published a book alleging the US stock market is rigged in favor of high-frequency traders.
Dark pools, which are regulated more lightly than exchanges, have gained popularity for trades of all sizes because they allow firms to avoid paying exchange fees.
Around 40 percent of all US stock trades, including almost all orders from “mom and pop” investors that go through brokerages, now happen “off exchange,” up from around 16 percent six years ago.
Modal Trigger

Regulators in Canada and Australia have already taken steps to curb the growth of dark trading by requiring, for instance, that off-exchange trades be of a minimum size or have a significantly better price than can be found on an exchange. Authorities in Europe and Hong Kong are eyeing similar rules.
Slow-go
The SEC for years has been studying market structure issues, an effort that intensified after the May 2010 “flash crash” when $1 trillion in shareholder equity was briefly wiped out of the market in a matter of minutes.
The agency has taken a cautious approach, especially because its last overhaul of market rules in the early to mid-2000s fueled the market fragmentation that gave rise to high-speed trading and dark pools.
If the SEC ultimately proposes a “trade-at” test, it would be incorporated into a broader “tick size” pilot that is being developed to study whether widening the increments, or ticks, at which stocks are priced could incentivize more trading in small and mid-sized companies, the people said.
The idea for a tick-size pilot originated in the 2012 law known as the Jumpstart Our Business Startups Act. It required the SEC to consider a pilot to study whether allowing smaller company stocks to trade in wider increments might help spur more trading. Today, all listed stocks for companies big and small are quoted in one-penny increments — a pricing scheme that has been around since 2001.
Previously, stocks were traded in fractional increments, such as one-sixteenth of a dollar.
While decimal pricing has helped reduce costs for investors in large companies, critics say smaller companies have suffered because brokers have a harder time turning a profit. As such, there is little incentive to produce market research on these stocks, or even to trade them, so they languish and become illiquid.
Exchanges, including the NYSE and Nasdaq, have lobbied the SEC to include a trade-at provision in any such pilot.
Without it, they fear that increasing the quote size will only drive more trades away from the exchanges because spreads will be even higher and dark pools will have a greater incentive to pull in more business, according to two other sources familiar with the exchanges’ thinking.
Now, SEC staff are thinking about dividing up the pilot into three groups of similar types of stocks, according to the people familiar with the agency’s thinking.
One group would trade with a wider tick size, most likely at nickel increments instead of a penny. Another group would continue to trade in penny increments as they do today. And the third group would trade at the wider tick size and also be subject to the trade-at rule.
Modal Trigger

SEC staff are also considering whether to exempt orders for mom-and-pop investors from the trade-at requirement, the sources said. That’s because these kinds of investors tend to be more worried about getting their trades executed, and less concerned about the price of the stock.
Sang Lee, a co-founder of the market structure consultancy Aite Group, said it’s not clear if expanding a trade-at rule beyond a pilot would have a positive impact. “I don’t know if just throwing in another set of rules would not just lead to another set of unintended consequences,” he said.
Long time coming
The SEC in 2009 floated a plan that would require dark pools to make information about an investor’s interest in buying or selling a stock available to the public instead of only sharing it with a select group of investors.
However, the plan has failed to gain traction and has not been formally adopted.
The people familiar with the agency’s thinking said the move to include a trade-at test in the pilot has some support among the SEC staff.
Republican SEC Commissioner Michael Piwowar has been among the most vocal agency members pushing for a tick-size pilot.
In February, SEC Chair Mary Jo White also endorsed the idea, saying the pilot would become a reality.
Neither has publicly discussed including a trade-at provision, and it is unclear how the five-member commission would vote on such a proposal.

(Barron's) Flying Too High: LinkedIn, Twitter, NetSuite

Flying Too High: LinkedIn, Twitter, NetSuite
Internet and biotech stocks are melting down, but most of the market looks fine. Apple, yes. Twitter, no.

The stock market's highfliers are falling from the sky, led by Internet and biotechnology stocks. The New York Stock Exchange Arca Biotech index is off 19% from its high seven weeks ago, while the Nasdaq Internet index is down 17% from its March peak. The air has come out of stocks like Twitter (ticker: TWTR), which is off 43% to $40 from its late 2013 high, and the 3-D printing group, the subject of a bearish Barron's cover story last month, is down sharply (see Follow-Up story).

Five months ago, Barron's warned about froth in the tech sector and other pricey pockets in a cover story ("Bubble Trouble?" Nov. 18, 2013), while arguing that much of the rest of the stock market looked fine. We were a little early with the bubble call, but since then, many inflated techs have come down; the group of 11 highfliers that we flagged are off an average of 10.9%. Meanwhile, a group of more value-oriented stocks that Barron's argued looked appealing has gained an average of 4.3%, above the 1.8% rise in the Standard & Poor's 500.

Even with the selloff in the highfliers, most look richly priced because of modest earnings or outright losses (see table). A nicely profitable Facebook (FB) is an exception. Moreover, many techs continue to get valued using a dubious profit measure that ignores often enormous stock-based compensation. Facebook, Twitter, LinkedIn (LNKD), Zillow (Z), and Salesforce.com (CRM) are prime offenders.

While there aren't a lot of bargains in the stock market right now -- only a small fraction of the S&P 500 trades for less than 10 times this year's estimated profits -- most sectors still look appealing. "My guess here is that we're having a valuation adjustment in one small part of the market, in the highflying momentum stocks that got ahead of themselves and are now correcting," says Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "I think this is more of a buying opportunity."

An optimistic Paulsen cites several factors, including stronger-than-expected U.S. economic reports, resiliency among economically sensitive stocks, and strength in emerging-market equities. Paulsen thinks U.S. real economic growth could average 3.5% this year in spite of a weather-depressed start in the first quarter.

Down 1.5% so far this year at 1820, the S&P trades for less than 16 times estimated 2014 operating earnings, not bad in a low-rate environment with a 2.6% yield on the 10-year Treasury. The Dow Jones Industrial Average is faring worse, with a year-to-date decline of 3%. The index's distinctive price-weighted format -- in which the highest priced issues dominate -- has been hurt because the Dow's two biggest percentage losers this year, Visa (V) and Goldman Sachs (GS), are two of the three highest-priced issues. The Dow trades for a more reasonable 13 times estimated 2014 profits with four components, JPMorgan Chase (JPM), Goldman, Travelers (TRV), and IBM (IBM), carrying forward price/earnings ratios of 10 or less.

Enlarge Image

Small and midsize stocks still look expensive. The Russell 2000 index trades for about 24 times estimated 2014 profits and the S&P MidCap 400 commands a P/E of 18. Some of the best values lie among large stocks.

Barron's highlighted 13 of them in November, and many continue to look appealing, including JPMorgan, Morgan Stanley (MS), Cisco Systems (CSCO), Apple (AAPL), and Google (GOOGL).

JPMorgan dipped 4% on Friday, to $55, after reporting first-quarter earnings of $1.28 that missed the consensus estimate by 12 cents, due mostly to disappointing trading profits. The quarter was hardly a disaster, and the stock has one of the lowest P/Es among major financials. It trades for a reasonable 1.3 times tangible book value, a small premium above Bank of America (BAC) and a big discount to Wells Fargo (WFC), which fetches twice tangible book. JPMorgan yields almost 3%.

Morgan Stanley has pulled back 9% this year to about $28 and now trades just above tangible book of $27. CEO James Gorman's strategy of emphasizing retail brokerage over trading is paying off, and the company's profits are expected to grow 40% this year to $2.43 a share. Archrival Goldman Sachs also looks attractive at $152, equal to its year-end 2013 book value, and 7% above tangible book. In its partnership days, Goldman allowed only partners and certain select employees to buy stock at book value. Now, anyone can.

In technology, old-line companies like Microsoft (MSFT), Cisco, Apple, and Intel (INTC) have held up well as the highfliers have come down. Apple, at $520, trades for 12 times estimated profits in its 2014 fiscal year ending in September. That P/E is overstated because Apple has $142 billion of net cash, or $158 a share.

The marquee biotech stocks look more attractive after their selloff. Some, including Amgen (AMGN), Gilead Sciences (GILD), and Celgene (CELG) -- have close to market multiples. Profits per share at Celgene and Gilead are expected to double by 2017. Few big companies are capable of that.

All this suggests that despite some ominous headlines, the stock market's health is still good.

(Barron's) Trouble Ahead on the Frontier

Trouble Ahead on the Frontier
With changes coming in these nascent markets' indexes, stellar returns are much less likely. Trading U.A.E. and Qatar for Nigeria and Kuwait.

Emerging Markets

Frontier markets have been on a tear, benefiting in part from investor worries about major emerging-market countries like Brazil and China.

Since May, the iShares MSCI Frontier 100 ETF (ticker: FM) has returned 25%, while the iShares MSCI Emerging Markets ETF (EEM) has just broken even. This may be a brief star turn. Frontier currencies are under pressure, and their two best performers—the United Arab Emirates and Qatar—will leave the MSCI frontier-markets index on June 2, without solid understudies.

This year, the effect of Federal Reserve "tapering is shifting from emerging markets to frontier markets," warns HSBC in a new research report. Argentina, which was downgraded from emerging to frontier market in 2009, started the trend in January, sending the peso down almost 20% against the dollar. In February, amid the Ukraine crisis and falling Russian ruble, Kazakhstan devalued the tenge by 19%, and Ukraine's hryvnia slumped 27%. Unlike emerging-market currencies, which mostly float freely and adjust to changes continuously, frontier-market currencies are heavily managed, or even pegged, which means they can require big adjustments once they can no longer maintain their value.

The UAE and Qatar—about a third of the MSCI index—have driven performance: In the past year, MSCI UAE returned 83%, and MSCI Qatar rose 32%. In the recent World Economic Outlook, International Monetary Fund praised the UAE and Qatar for diversifying beyond oil, embarking on public investment programs, and for the 2020 World Expo and the 2022 World Cup.

ONCE THE TWO PERSIAN GULF STATES leave in June, Citi Research estimates that Kuwait (29%) and Nigeria (17%) will make up about half of the index. Morocco, Argentina, Pakistan, and Kenya will each have about a 5% to 7% weight.

In contrast to the UAE and Qatar, Kuwait still sits on its black gold. The government only spent 8.3% of its total expenditures on development projects last year, down from 10.2% in 2010. Not surprisingly, in the past year, Kuwait underperformed the benchmark Frontier Market index by 8.4 percentage points.

Nigeria is a wild card with lots of political risk. The country may have a hard time defending its currency, the naira, says HSBC. Nigeria has Russia-like problem in that it runs a sizable current-account surplus from oil exports, but needs continuous currency intervention to offset persistent capital flight. In March, Nigeria's foreign-exchange reserve fell by 8%, and the naira is off 2.2% this year.

Investors worry that next February's general election will be a repeat of 2007, marred by violence and allegations of rigging. Just a couple of months ago, President Goodluck Jonathan sacked central-bank governor Lamido Sanusi for "financial recklessness," after the respected economist accused state-owned Nigerian National Petroleum of socking away $50 billion in oil revenue that should have gone to government coffers. The figure was larger than the country's entire foreign reserve. Investors' apprehension about these issues has helped push the Global X Nigeria Index ETF (NGE) down 9.7% in 2014.

If it overcomes these problems, there's lots to like. Nigeria is Africa's largest economy and has become less reliant on oil. Its services sector represents about half of gross domestic product, from less than 30% two decades ago. And the IMF expects GDP growth to accelerate to 7.1% this year from 6.3% in 2013.

Regardless, the new MSCI frontier markets index looks uninspiring and undiversified. Interestingly, as a nod to the problems, the MSCI recently started a consultation on potential methodological changes for the FM 100 Index.

(Barron's) Financial Bigs Face Off in the Ring at Caesars

Financial Bigs Face Off in the Ring at Caesars
Private-equity Apollo Group and TPG are set to battle bondholders. Caesars shareholders will likely get bloodied.

A heavyweight fight could soon break out over Caesars Entertainment as the controlling shareholders of the casino company, private-equity giants Apollo Global Management and TPG, square off in the ring against Caesars bondholders. The purse: some $19 billion in debt.

Two bondholder groups have sent letters in the past few weeks to Caesars (ticker: CZR), arguing that a wholly owned subsidiary, Caesars Entertainment Operating Co., is hopelessly indebted and that various asset sales and transfers from CEOC to other Caesars entities in the past year be reversed.

The reversal request first came in a letter last month from a law firm representing a group of CEOC's second-lien bondholders, stating that the operating company, which is burning through about $1 billion in cash a year, is "insolvent" and that the asset transfers, mainly involving hotel-casinos, amount to a "piecemeal liquidation" done for "inadequate compensation." The deals, they claim, are "voidable under applicable law."

Caesars responded that there is "no merit" to these allegations, and warned that if a court reversed the deals, it would have a "material adverse effect" on its business.

The second-lien bondholder group is rumored to include distressed-debt specialists Oaktree Capital, headed by Howard Marks, and Appaloosa Management, which is run by David Tepper, making this a potentially historic bout. Neither firm would comment.

Caesars was taken private by Apollo and TPG in a $30 billion leveraged buyout in 2008, just before the financial crisis slammed the casino industry. Apollo and TPG have since engaged in a series of transactions to refinance and restructure debt while trying to preserve and expand the value of their equity in Caesars, which is underwater. Apollo CEO Leon Black is a bond maven.

Caesars is one of the country's largest casino operators with 39 casinos in 13 states. It has a sizable presence in Las Vegas, including the flagship Caesars Palace, and a group of regional properties, many operated under the Harrah's brand. Its overall results have been weak, hurt by regional markets, notably Atlantic City.

Caesars Entertainment shares, at $19, are down 25% in the past month amid several concerns, including the bondholder move to void the asset sales and the possibility that a debt restructuring could significantly dilute Caesars equity holders. Another, more remote possibility is that the entire value of the company could be attached by Caesars' creditors. Given the risks, Caesars' shares look overvalued.

The bull case hinges on a couple of developments: a successful restructuring of the operating company's debt, a major expansion of U.S. online gambling, and growth in the Las Vegas casino market.


A Caesars-controlled entity owns 89% of Caesars Interactive Entertainment, which operates an online-gambling platform serving New Jersey, Nevada, and many countries outside of the U.S. where such activities are legal. Another Caesars unit, Caesars Entertainment Resort Properties, or CERP, owns a group of Las Vegas hotels, including the Paris, Rio, and Flamingo properties.

One problem with the bull case is that legalized online gambling on a national level looks like a long shot, given opposition led by powerful casino magnate Sheldon Adelson, who heads Las Vegas Sands (LVS). Caesars Interactive had $316 million of revenue last year.

Caesars has an intricate capital structure, and any restructuring talks are tough to predict. "The situation is very fluid to say the least," says Gregg Klein, an analyst at Imperial Capital in New York. "The potential for litigation creates a lot of uncertainty. Ultimately, it's in everyone's interests to reach an agreement." He has an Underperform rating and a $17 price target on Caesars Entertainment.

ONE SUSPECT DEAL INVOLVED the sale last year by CEOC of the Octavius Tower and Linq, which includes retail stores, restaurants, and a giant Ferris wheel, all in Las Vegas, to CERP for $600 million. That looks like a below-market price of about five times annual cash flow—less than the typical Vegas multiple of eight to 10. It's also questionable from an operating standpoint, since CEOC owns Caesars Palace, while CERP holds Octavius, which is the tower at Caesars Palace completed in 2012. "It's like having the Park Avenue side of the Waldorf Astoria hotel owned by one company and the Lexington Avenue side owned by another company," says an investor.

The issues are further complicated by the fact that there are actually two publicly traded Caesars: Caesars Entertainment and Caesars Acquisition (CACQ). The latter was formed last year with a $1.2 billion rights offering to Caesars Entertainment shareholders. Its shares trade at about $13. Apollo and TPG own 64% of Caesars Entertainment and less than half of Caesars Acquisition. Caesars Entertainment has a market value of $2.7 billion; Caesars Acquisition is valued at $1.8 billion.

The two public Caesars share ownership of yet another company, Caesars Growth Partners, which holds the online gambling business and $1.1 billion of the operating company's debt. It also has a deal to buy four casinos from CEOC for about $2 billion, another transaction that may be challenged by bondholders.

A key battle in the coming CEOC restructuring talks will likely involve holders of $5.5 billion of second-lien notes. These bonds have dropped 30% in the past year and trade for only 47 cents on the dollar. CEOC's situation looks hopeless because it has $16 billion in net debt (assuming the $2 billion casino deal goes through), and just $1.1 billion of trailing annual cash flow.

The ratio of net debt to cash flow is nearly 15-1. A ratio of eight is viewed as high in the junk-bond market. And since U.S. casino properties typically command no more than eight to 10 times cash flow, CEOC likely can't liquidate and pay off its creditors. Fitch Ratings analyst Michael Paladino sees little or no value to bondholders beneath the first-lien debt, which totals $11 billion.

Complicating matters even further, CEOC debt benefits from a guarantee from Caesars Entertainment, which allows bondholders to attach the public company's assets in a bankruptcy. However, the wording of CEOC's bond indentures apparently allows Caesars Entertainment to extricate itself from its guarantee on the second-lien debt in certain circumstances. Fitch, which published a detailed report on the topic, believes Caesars "can get rid of the guarantee, although the release would be subject to execution risk."

If the guarantee is stripped away, the second-lien bondholders could get little or nothing in a bankruptcy. So why does the debt trade for 45 to 50 cents on the dollar and not less? The second-lien holders apparently are betting they have leverage because Caesars may want to avoid a disruptive bankruptcy of its largest unit that owns Caesars Palace.

Any deal with second-lien bondholders could involve issuance of a sizable amount of Caesars Entertainment equity, diluting existing holders. Against this backdrop, Caesars management and its private-equity owners could try to drive down the second-lien bond prices, perhaps by removing the Caesars Entertainment guarantee, to minimize the cost of any settlement.

Ring veterans Leon Black and TPG may now be facing their most formidable opponents. Shake hands and come out fighting.

(Barron's) At Christie's, an Artful CEO

At Christie's, an Artful CEO
The chief of auction house Christie's, Steven Murphy, discusses his firm's strategy, successes, and prospects.

I stopped by the sun-filled London office of Steven Murphy, CEO of Christie's International, to see what art the transplanted American had bought for his own account. After first insisting he couldn't possibly be considered a collector in a house of renowned collectors and specialists, Murphy nonetheless revealed that he and his wife owned works by Jasper Johns, John Singer Sargent, and contemporary German artist Anselm Kiefer. He has an 18th-century Jain sun calendar he prizes, plus some exquisite amphoras from the first centuries, both B.C. and A.D.

"They're just beautiful objects," he says about the amphoras. "Like so many things in antiquities, they are affordable and an antecedent of so much to come." Murphy proved his point by mentioning a Roman marble relief of the Three Graces, circa second century A.D., that three seasons ago sold at Christie's for 505,250 pounds ($813,958) and was "out of my budget."

"It was Botticelli's Primavera and Matisse -- that pose of the Three Graces. For anyone who loves art, Florentine masters, or Matisse, there was the antecedent of that idea."

Murphy is the guy you pray will sit next to you at the boring dinner party. Since obtaining a B.A. in English literature from Georgetown University (with a concentration in art), Murphy has been a division president at Simon & Schuster, president of EMI Music/Angel Records, managing director of Disney Publishing Worldwide, and CEO of U.S. publisher Rodale. That was before France's Pinault family, owners of Christie's, tapped the American to become their top auctioneer.

There was a pattern emerging here. Murphy's career, like his collection, is an eccentric grab bag of choices that, at first blush, doesn't seem to have a cohesive theme. So I asked Murphy -- in a polite way appropriate to our genteel Mayfair surroundings -- was he perhaps an American flake? He smiled. "I strive to be an expert at my job," he replied.

MURPHY TOOK CHRISTIE'S HELM IN 2010, and on Dec. 23, just 90 days into the job, he gathered together the auctioneer's worldwide management. "We need to wake up to the fact that this will not be an industry that is going to skip over the disintermediation [seen] in the publishing and music business, where I used to live," he told his new team. "We have a choice. We can battle against that, or we can become the disruptive influence ourselves."

Three years later, the results of that meeting are rolling in. In 2013, sales reached a record $7.13 billion, compared with $6.3 billion at Sotheby's (ticker: BID). But the story behind the 14% sales increase at Christie's suggests an even brighter future: new wholly owned offices in China and India, with Brazil opening next year; private sales that were increased by 20% last year; and, importantly, 60 successful online-only "proof of concept" auctions concluded to date. Appropriately, the most expensive online sale last year was the $387,750 paid for an Apple-1, the original Apple computer.

New clients at Christie's accounted for 30% of all buyers in 2013 and produced 22% of the firm's sales. That's important. It's not hard to imagine some of these younger online buyers now purchasing $10,000 works becoming the firm's important clients at the live auctions and private sales.

So Murphy's seemingly disparate career is linked, after all. "I found great similarities between the management responsibilities of a publishing house, music labels, and Christie's. If you forget at any point it is about the art, music, or book -- you lose." Companies that do, he said, decline "in two to three years."

I conceded I had seen the equivalent in private banking. The moment wealth managers started pushing self-serving products with the intent of maximizing their profits, they programmed their businesses' decline. Conversely, bankers mono-focused on delivering banking services that clients actually wanted, generally found the profits rolling in. "D'accordo," Murphy said, using the charming Italian phrase signifying agreement.

THE OTHER POINT MURPHY MADE, quite eloquently, is that the staff members at Christie's are, in themselves, real artists -- as much as the musicians and authors he worked with at an earlier stage in his career. "I believe Christie's is succeeding, to the degree it is right now, because in the last three years we allowed the departments, whether silver or impressionists, to have their own budget, their own money, to take their own risks." His job as CEO, as he sees it, is to let the highly creative staff buried in the bowels of the auctioneer "play tennis with the net."

Within the confines of the tennis court's boundaries, in other words, he lets staff play their own game and take risks rushing the net. "It is assumed that creative people don't like having a budget," he says. "Or don't like deadlines. Wrong. They actually see that as a creative challenge. If you say, 'We need to do this, but we only have $1.1 million, and it's got to be done by the Christmas party' -- they say, 'Argh,' but then they come back with this incredible way of making it happen. It's a challenge to them."

So, in the end, I walked away from our chat with an important reminder that there is something seriously magnificent about a flaky American liberal-arts education. May many more Murphys once again make it into the C suite.