TheChek News Flow

The flights signal possible widening of U.S. campaign against cartels and alleged drug traffickers

The U.S. flew Air Force B-1 bombers near Venezuela on Thursday, stepping up pressure on President Nicolás Maduro only days after other American warplanes carried out an “attack demonstration” near the South American country.

Two B-1 Lancers took off from Dyess Air Force Base in Texas on Thursday and flew near Venezuela, though they remained in international airspace, according to a U.S. official and flight tracking data.

The B-1 can fly at supersonic speeds and carry 75,000 lbs. of bombs, more than other U.S. bombers. They can also conduct maritime surveillance. The aircraft haven’t been moved to bases in the region, as they have the range to reach anywhere in the Caribbean from the U.S., according to a defense official.

Last week, the Air Force and Marines conducted a similar show of force with B-52 bombers and F-35B jet fighters near an island off the coast of Venezuela where its military held training exercises in September. The bombers circled the area before returning to the U.S., according to flight tracking data. The Pentagon described the flights as an “attack demonstration.”

After this article was published, President Trump told reporters at the White House it was “not accurate.”

The bomber flights are part of a broad military ramp-up, which includes eight warships, a submarine, a P-8 maritime patrol aircraft, MQ-9 Reaper drones and an F-35 fighter squadron now in the region.

The U.S. has seldom flown bombers near South America in recent decades, usually carrying out just one planned training mission a year. But more missions involving bombers could be carried out soon, according to two defense officials.

Thursday’s flights signal “seriousness and intent,” said David Deptula, a retired Air Force general and dean of the Mitchell Institute for Aerospace Studies, an aerospace think tank. “You’re bringing an enormous set of capabilities…endurance, payload, range and precision,” he said.

The widening of the military campaign has focused on countering alleged drug traffickers from Venezuela and Colombia. After carrying out at least seven strikes on go-fast boats and a submersible in the Caribbean since early September, Defense Secretary Pete Hegseth said Wednesday that the U.S. had attacked two vessels in the eastern Pacific this week.

Trump has suggested that striking targets on land could come next. “There are few boats traveling on the water, so now they’ll come in by land to a lesser extent, and they will be hit on land also,” Trump said Wednesday at the White House.

Bombers could be used to hit narcotics distribution or production facilities, according to current and former Air Force officials.

The administration has faced growing bipartisan scrutiny about the legal basis for strikes carried out in recent weeks, though the Republican-controlled Congress has rejected measures to limit the president’s power to continue the attacks.

Asked whether Trump would need authorization from Congress to conduct strikes on land, Senate Majority Leader John Thune (R., S.D.) said Thursday, “I’m not sure I know the answer to that.”

Maduro has accused Trump of seeking regime change and has positioned troops along the coast, bracing for a potential attack. Trump has also accused Colombian President Gustavo Petro of aiding drug smugglers, while Petro has said his American counterpart is committing atrocities by ordering strikes on boats.

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Remembering the golden age of private credit returns

Ah, the glory days of private credit. 

It was only two years ago that Stephen Schwarzman could hardly hide his excitement about the mouthwatering returns Blackstone was earning by simply clipping coupons on its private credit investments.

“If you can earn 12 per cent, maybe 13 per cent on a really good day in senior secured bank debt, what else do you want to do in life?,” he mused in a Parisian ballroom in September 2023.

Well, those days are over. On Thursday, the DD’s Antoine Gara reported that even mighty Blackstone concedes that private credit returns are falling.

In an interview, Jonathan Gray, president of the $1.2tn in assets giant, said Blackstone was no longer earning mid-teens returns on its private debt portfolio, as short-term interest rates fall and the return of banks to the leveraged loan market causes spreads to contract.

“Base rates and spreads have come down, so the absolute returns reflect that,” said Gray. “Some of that excess return, when you were getting mid-teens returns as a lender in senior credit two-and-a-half years ago, has gone away. So, yes, there has been some loss of absolute return.”

Blackstone and its peers in private credit like Apollo and KKR still believe strongly that they can originate loans that carry large premiums to liquid high-yield and investment grade bonds.

Nonetheless, the basic arithmetic of falling overall returns for private credit has big ramifications for Wall Street. 

DD will be watching so-called business development companies, many of which now have dividend payout ratios well in excess of their projected interest income. Private BDCs could also face pressure.

But it’s not all doom and gloom.

The swift increase in interest rates between 2022 and 2024 was meant to pummel private equity, pressuring the finances of levered companies and making new deals hard to pull off. A reduction in borrowing costs could be the relief valve many PE investors have been praying for.

“It is helpful for your borrowers when they have to pay less debt service. So I think it is supportive on the credit side, and it’s very supportive on the transaction side,” said Gray, who noted that “the dealmaking dam is breaking” after a series of megadeals this year.

Paramount or bust for Warner Bros Discovery

After months of rebuffed advances, Paramount has finally forced Warner Bros Discovery’s hand.

Having swatted away at least three friendly approaches from Paramount’s billionaire owner David Ellison, WBD’s board has now hung the “for sale” sign on the lot.

The latest offer — about $23.50 a share — has forced other potential bidders to consider making a move. Netflix, Amazon and Comcast have all expressed “interest”, people familiar with the matter told DD, but mostly in bits and pieces.

Netflix would love HBO as it’s the only brand that could cement its status as the world’s number-one streamer. But it has zero appetite for CNN or the rest of Warner’s linear baggage. Buying the whole company just to spin off the parts would trigger a monster tax bill and a regulatory migraine.

Then there’s Amazon, which faces the same dilemma plus a Federal Trade Commission that’s already on its case. Jeff Bezos is likely to be spared some of the regulatory hurdles given he’s become more Maga friendly but it would be hard to justify, according to competition experts.

Comcast looks like a long shot too. Its chief executive Brian Roberts isn’t exactly on friendly terms with the current administration, and few big media deals get through Washington these days without at least a wink from the White House. Plus Comcast is going through its own split so the timing for a deal may be sub-optimal.

That leaves Paramount. It’s the only bidder that can credibly buy all of WBD and make the economics work. HBO and the Warner studio fit neatly with Paramount’s film and streaming assets (and Paramount Plus desperately needs more content).

The linear overlap offers fat cost-cutting potential. Obviously, regulators might not love a combined CNN-CBS, but that could all change if Bari Weiss is in charge of both. 

Paramount also comes with useful friends: Ellison’s father Larry is one of the richest men in America and a close ally of President Donald Trump. Plus he’s flanked by Gerry Cardinale’s RedBird Capital, which knows how to structure a media deal.

WBD chief David Zaslav may be sitting pretty in the hot seat, but may have to play nice.

WBD’s board appears ready to play ball, especially given that Paramount’s interest has helped lift its stock 100 per cent since the start of the year. It’s hard to believe that WBD shareholders won’t launch a rebellion if the board just walks away. 

How many European companies does it take to beat SpaceX?

Europe is home to several national champions in the aerospace and defence sector.

But for Europe as a whole to compete globally with the US and China, those national champions will need to turn to M&A to create continental leaders. Yet while rhetoric for such deals has increased, few have happened because of domestic concerns in each market.

Thursday provided a rare example of action: the Franco-German Airbus, Italy’s Leonardo, and France’s Thales announced a long-awaited deal to combine their space businesses in order to create a pan-European champion that can compete in a market that has been disrupted by Elon Musk’s SpaceX. 

Under the structure of the unusual deal, the new Toulouse-based entity will employ about 25,000 people and have annual revenues of €6.5bn. Airbus will own 35 per cent, with the others holding 32.5 per cent each, the FT’s Peggy Hollinger and Sylvia Pfeifer reported.

Active talks took place over the past year. Deutsche Bank advised Leonardo, while Lazard worked with Thales and Goldman Sachs was with Airbus.

The new group is to operate under joint control, with the companies saying the entity will be modelled on MBDA, Europe’s missile champion created in 2001 by Airbus, the UK’s BAE Systems and Leonardo.

The deal, in many ways a response to Trump’s focus on US defence spending, won’t become operational until 2027, deep into his second presidency. 

Only then will it prove whether it can compete in a space dominated by Americans. Any signs of success will give momentum to cross-border consolidation in Europe, something bankers will be cheering from London to Frankfurt.

The rift with SpaceX is the latest symptom of the disarray engulfing the US agency and its ambitions

US President Donald Trump is determined to beat China to the moon — and then to Mars. Yet if anyone in Beijing were truly anxious about America’s progress, they might be reassured by the events of recent days. 

The public spat between Elon Musk, whose SpaceX business is Nasa’s most important contractor, and Sean Duffy, US transport secretary and acting head of the space agency, may look like a clash of egos. In reality, it is merely the latest symptom of the disarray engulfing Nasa and its ambitions.

For the past nine months, the US space agency has been operating without a permanent leader. It has been struggling to cope with thousands of departures forced by Musk’s so-called Department of Government Efficiency, a proposal for dramatic cuts to its science budget and the uncertain future of many programmes on which international partnerships rely.

Now it appears to have become the focus of a power struggle over its leadership, and its status as an independent agency.

It began on Monday with Duffy’s declaration that SpaceX was falling behind in its contract to adapt its Starship rocket into a lunar lander capable of taking astronauts to the surface of the moon by 2027. Addressing a theme dear to Trump’s heart, Duffy insisted that the only way to beat the Chinese — who aim to land taikonauts on the moon by 2030 — was to reopen SpaceX’s contract and invite new bidders.

Musk’s riposte was swift. “SpaceX is moving like lightning compared to the rest of the space industry,” he posted on his social media platform X. “Starship will end up doing the whole moon mission. Mark my words.”

But when reports emerged that Duffy had suggested Nasa could be integrated into the Department of Transportation, Musk snapped. Duffy’s proposal looked like a naked power grab. It came even as speculation mounted that Jared Isaacman, the billionaire who has twice flown on Musk’s rockets, was back in the running to lead Nasa after his nomination had been pulled abruptly in May. (The last time Musk turned on the administration, Isaacman was one of the casualties.)

So with the leadership of his biggest customer in contention, Musk got personal. “The person responsible for America’s space program can’t have a 2 digit IQ,” he posted. Calling the secretary “Sean Dummy”, the SpaceX founder asked followers to take a poll that alluded to Duffy’s record as a champion lumberjack athlete. “Should someone whose biggest claim to fame is climbing trees be running America’s space program?” Musk asked.

This may all seem rather entertaining, if childish. But the spat is doing nothing to resolve the deeper crisis over Nasa’s direction and credibility.

While Duffy may be correct that Starship is running behind schedule, he failed to mention that the entire Artemis programme — Nasa’s mission to return astronauts to the moon — is also running late, and not just because of delays to SpaceX’s lunar lander. Veteran space reporter Eric Berger of Ars Technica noted that vital kit such as the lunar space suits would not be ready in time. No point landing humans if they can’t walk on the surface.

As for Nasa’s target date of 2027? “Almost nobody believes in that date,” said Greg Autry, the administration’s nominee for Nasa finance director, in an interview for the FT’s Tech Tonic Mission to Mars podcast last month.

Part of the problem is that Nasa has taken a vastly more complicated route to send its astronauts to the Moon, combining SpaceX’s Starship lander with the agency’s own over-budget and much-delayed Space Launch System. And while the US programme stumbles from one delay to another, China is still talking about its 2030 target.

“This is a neck-and-neck race,” Autry told me last month. “The Chinese solution is much simpler — less capable in a lot of ways than our initial moon plans, but very practical.”

Meanwhile, the government shutdown and radical budget proposals have left Nasa adrift and demoralised. “I’ve seen hurricanes, seen shuttle crashes. I’ve never seen the entire agency — top to bottom — freaked out like they are now,” said Keith Cowing, a former Nasa scientist currently running the news site NasaWatch. “They don’t know what’s going to happen.”

With such turmoil it is difficult to see how Trump will fulfil his ambition to plant the stars and stripes on the moon before China lifts its five-starred red flag. Without clear leadership, there can be no plan. And without a plan, there can be no mission.

Blackstone-backed theme park giant under pressure after debt sell-off

Struggles at Legoland owner Merlin Entertainments are raising the prospect of a debt restructuring

Blackstone-backed Merlin Entertainments is under increasing financial strain ahead of a critical refinancing, as the Legoland-owner’s weak performance has led to a sell-off in its bonds and heightened fears over a potential restructuring.

On Tuesday Moody’s downgraded Merlin, which also owns Madame Tussauds and the London Eye, further into junk territory.

The rating agency noted that “maintaining a sustainable capital structure will be challenging without further asset disposals or shareholder support,” as it cut Merlin’s rating to Caa1, seven notches below investment grade.

Merlin has struggled with rising operating costs and subdued consumer spending since it was taken private in a £6bn leveraged buyout in 2019 — a deal that left the group saddled with more than £4bn of debt. As of the end of 2024 Merlin operated 135 attractions in 22 countries.

Bonds issued by the leisure group have sold off in recent months, ahead of a refinancing of £630mn of debt maturing in 2027. Merlin’s safest senior secured bonds, which were trading at par in March, now trade at 86 cents on the dollar.

One high-yield bond trader said Merlin had been hit by a “perfect storm,” including a “harsh business environment, plus there’s high new capex needed, and an upcoming finance need . . . it needs a restructuring, big time”, he added.

The year after Merlin was taken private — by a consortium of Blackstone, Canadian pension fund CPPIB and Kirkbi, the investment vehicle of Lego’s founding family — it was forced to close all but nine of its 130 sites when the Covid-19 pandemic struck.

Merlin subsequently turned to bond markets to raise €500mn of emergency funding.

Moody’s downgrade this week comes two months after a downgrade from another rating agency, S&P, which warned that Merlin could run low on cash next year as a result of depressed earnings and interest expenses.

Merlin’s pre-tax losses more than doubled to £492mn in 2024 after it wrote down the value of some of its largest assets by £384mn, including a £163mn impairment of Madame Tussauds.

Alongside struggles at Merlin’s long-held assets, the company has said returns generated by Legoland New York and Legoland Korea, which opened in 2021 and 2022 respectively, have failed to meet expectations.

Helen Rodriguez, head of special situations at CreditSights, said that Merlin’s profitability was being “gnawed away” by “under-investment, tired and less relevant assets, a downturn in US visitor numbers across the sector and a weak UK consumer”.

Merlin’s “scattergun overexpansion” has forced it to look at dialling back its sprawling portfolio, Rodriguez added.

Multiple restructuring advisers said Merlin was on their watchlist, while several credit investors questioned the sustainability of its capital structure.

Merlin said it was improving profitability and its “smart spending” programme would generate roughly £50mn of annual cost savings.

“Merlin continues to maintain a healthy operating cash flow with ample liquidity . . . and continues to invest in capex in support of the long-term growth of the business,” the company said.

The company is due to receive around £200mn from the sale of 29 Lego Discovery Centres to the Lego Group by early 2026. It shelved the sale of its British aquariums this summer after bids fell short of expectations.

A spokesperson for Blackstone and Kirkbi said: “We have confidence in Merlin and its management team, and believe the financial profile of the business will continue to strengthen.”