Thu Dec 20, 2012 7:41am EST

n">(Reuters) - Private equity firm KKR & Co LP on Thursday kicked off a joint venture with Suez Environment to run the water and wastewater systems of a New Jersey city it hopes will become a model for cash-strapped local authorities in the United States.

KKR and Suez subsidiary United Water will pay $150 million to the city of Bayonne for the rights to a 40-year concession, allowing them to collect water and wastewater revenues but also requiring them to come up with another $157 million over the life of the contract to manage and upgrade the systems.

The cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that is likely to be met primarily through higher water bills and local fees, according to the American Water Works Association, a non-profit think tank.

The Environmental Protection Agency estimated in 2007 that the U.S. must invest $390 billion over the next 20 years to update or replace aging wastewater infrastructure.

But the U.S. water industry, run for the most part by the public sector, remains highly fragmented, comprising about 52,000 water systems - over half of which serve a population of 500 or less - and 16,000 wastewater facilities.

Concessions such as the one awarded by Bayonne are rare due to political opposition or reluctance from local authorities to give up control of what they see as essential infrastructure, especially when they can tap the municipal bond market for their financing needs.

"We are slowly starting to see more cities looking at these partnerships given all the fiscal pressures they're facing. But for every three cities that evaluate these options seriously, at least two ultimately can't get to the finish line," said Brandon Freiman, a principal at KKR's energy and infrastructure team.

"The one that gets to the finish line generally appreciates that these are win-win deals that are good for all constituents. So while we think that there should be more of these deals, progress has been very slow," Freiman added.

Last week, another private equity firm, Table Rock Capital, said it had finalized a 30-year concession worth more than $300 million, in partnership with Veolia Water, to run the water and wastewater systems of the city of Rialto in California.

Bayonne will pay off over $130 million of its debt with the money it gets from KKR and United Water, cutting its municipal debt burden in half. It will see the two firms take over more than 96 miles of water mains and more than 83 miles of sewers serving the city's 63,000 residents.

Consumers and businesses in Bayonne will see an initial 8.5 percent bump in their water and sewer charges, translating to an additional $5 per month for residential users. Rates will then freeze till January 2015 and then rise annually based on an inflation-linked formula.

"The partnership will invest in our aging infrastructure, and provide resources that the Bayonne Municipal Utilities Authority could not otherwise deliver. Simply put, this transaction will result in a more efficient and reliable water and sewer system for today and future generations," the authority's executive director Steve Gallo said.

Infrastructure investments of such kind usually deliver internal rates of return of a little over 10 percent, lower than those typically seen in the buyouts of companies but much safer in their risk profile.

KKR will fund 90 percent of the joint venture with United Water. Two thirds of the investment will be financed with debt on an average interest rate of about 5 percent.

KKR, which has $66.3 billion in assets under management, is making the investment through a dedicated infrastructure fund pool of $2.4 billion, that includes dedicated accounts with some of its investors.

Nassau County, located on Long Island just east of New York City, and among the wealthiest counties in the U.S., is negotiating a similar water and wastewater concession with United Water to help address its budget deficits.

(Reporting by Greg Roumeliotis in New York; Editing by Hans-Juergen Peters)

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n">(Reuters) - U.S. money managers cut their equity holdings to the lowest in three months in September despite a strong rally in U.S. stock markets, increasing their allocation in bonds to the highest in four, a Reuters poll found on Thursday.

The poll of 15 U.S. fund managers taken Sept 14-26, showed a drop in the average equity allocation in a global balanced portfolio to 62.6 percent, the lowest since June, from 64.6 percent in August.

That came despite a nearly 2 percent rally in the benchmark S&P 500 so far this month and a 16 percent rally since a recent trough in June. The MSCI world stock index is also up about 2 percent this month.

Investors in the asset allocation poll, as well as strategists the Reuters global stock market poll published on Wednesday, said that the "fiscal cliff" of tax increases and spending cuts at the start of the new year have made many investors cautious.

"We feel that (the S&P 500) is more likely to see modest moves upward in the near term, potentially declining as concerns surrounding the fiscal cliff come to bear near the end of the year," said Douglas Gordon, senior investment strategist at Russell Investments.

At the same time, the average bond allocation rose to 30.1 percent in September from 27.6 percent last month.

A chunk of that came from a rise in allocations to euro zone bonds, which followed the European Central Bank's announcement on September 6 that it intended to buy peripheral euro zone bonds in an attempt to bring down yields.

"We feel that this partially mitigates downside risks but certainly doesn't remove them. Questions remain surrounding longer term structural issues in Europe," said Gordon.

But it has become clear over recent days that Spain is very close to asking for a full international bailout. Allocations to euro zone equities by U.S. fund managers slipped slightly in September.

On the whole, government bonds attracted an average 39.7 percent of the firms' model allocation, up from 38.6 percent previous month. Firms allocated 10.9 percent of their global bond investments to the euro zone, up from 9.5 percent.

Stock markets broadly have rallied over the past few months in anticipation of a third round of bond purchases from the U.S. Federal Reserve.

On September 13, the Fed announced $40 billion purchases per month of agency mortgage-backed securities, pledging it would continuing buying bonds until there was a meaningful improvement in the moribund U.S. job market.

But allocations to U.S. and Canadian stocks fell in the latest Reuters asset allocation poll, together attracting 65.1 percent of the firms' overall stock exposure, down from 66 percent in August, and the lowest since June.

Apart from the threat of the "fiscal cliff" in the U.S., slowing growth in China, Latin America, and Europe have weighed on market sentiment, said David Goerz, chief investment officer of HighMark Capital Management.

Investors also allocated more to alternate forms of credit ranging from credit default swaps to agency mortgage backed-securities, which the Fed targeted in massive quantities in its latest stimulus plan.

Such credit accounted for 16.2 percent of bond investments, up from 15.3 percent last month.

(Reporting by Sam Forgione, Rahul Karunakar, Ruby Cherian, Deepti Govind; Editing by John Stonestreet)

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TOKYO | Thu Aug 9, 2012 2:42am EDT

TOKYO Aug 9 (Reuters) - Olympus Corp reported a 60 percent fall in quarterly operating profit and a deterioration in a key barometer of its ability to meet financial obligations, adding pressure on the scandal-hit Japanese company to enter into a capital deal.

For the April-to-June quarter, operating profit was 2.12 billion yen ($27.05 million), the company said on Thursday. Shareholders' equity fell to 2.2 percent of total assets.

The drop in the shareholders' equity ratio from 4.6 percent in March further pushes Olympus away from the 20 percent level widely regarded by analysts as indicative of corporate financial stability.

The 93-year-old manufacturer of cameras and medical equipment, has been in talks with several Japanese companies including FujiFilm Holdings on a capital tie-up as it tries to mend its severely depleted balance sheet hit by a massive accounting scandal last year.

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