Welcome back to Dry Powder. I’m Bill Cohan.

A happy Wednesday to all, but especially to Sam Altman, whose OpenAI is preparing to file its I.P.O. prospectus—quietly, as they say—with the Securities and Exchange Commission. That documentation could arrive as early as this Friday, The Wall Street Journal reports, with Goldman Sachs and Morgan Stanley leading the way as underwriters.

The quiet filing technique—in which the S-1 paperwork is not released publicly but only to the S.E.C.—replicates what SpaceX did a few weeks ago. So you and I will just have to wait to find out what’s under the hood. (The company is currently losing tens of billions of dollars a year, and expects to be profitable around 2030.) OpenAI, perhaps the most well-capitalized private company in history, last raised money at an $852 billion valuation. So you can be sure that the underwriters are shooting for a $1 trillion valuation, at the very least, and then are hoping it will trade up from there on the backs of gullible retail investors. Caveat emptor, for sure!

In today’s issue, a close look at whether Lipton Tea, under the auspices of CVC Capital Partners, is headed for bankruptcy. Plus, the return of the bond vigilantes and the A.I. startup aiming to make Wall Street analysts obsolete.

Also mentioned in this issue: Howard Lutnick, Marc Busain, Kevin Warsh, Josh Kushner, Robin Wigglesworth, Donald Trump, Rick Stengel, Scott Bessent, Johan Malmqvist, Grant Reid, Gabe Stengel, and more.

The bond vigilantes are back!: Once again, Donald Trump is testing the risk appetite of bond investors. You will recall that his April 2025 “Liberation Day” announcement of tariffs—a spectacularly flawed strategy from the outset—sent interest rates sharply higher in a matter of days. In the period leading up to Liberation Day, the yield on the 10-year Treasury stood at 3.96 percent. Within a week, it had jumped to around 4.3 percent. The spike alarmed Trump and his advisors, particularly Scott Bessent, the Treasury secretary, and Howard Lutnick, the Commerce secretary. Together they somehow convinced Trump, who usually doubles down on his mistakes, to pause many of the higher reciprocal tariffs for 90 days. Wall Street responded by elevating TACO—“Trump Always Chickens Out”—into the cultural lexicon and making it a bona fide trading strategy.

Now the bond market is experiencing the same jitters it did after Liberation Day, this time caused by Trump’s voluntary war in Iran. On February 27, the day before the conflict began, the yield on the 10-year Treasury stood, coincidentally, at the same 3.96 percent. Roughly 80 days later, that yield has exploded to more than 4.6 percent—an increase of a whopping 64 basis points, or 16.2 percent since the start of the war. In other words, Donald, you’ve again awoken the “bond vigilantes.” Well done.

Bond investors are naturally spooked by the increasing cost of oil and resurgent inflation, accelerating U.S. debt and deficits, and fresh doubts that newbie Federal Reserve chairman Kevin Warsh will be able to lower short-term interest rates anytime soon. That, of course, had been the reason Trump nominated Warsh for the job in the first place.

Trump insists that the United States has achieved a great military victory in Iran, and that the mullahs are eager to surrender. That hasn’t happened, as you know. But he could be looking for a way out of the economic and political Gordian knot he’s created for himself personally, and for Republicans more broadly. After all, the bond markets are telling the White House daily that it needs a way out. To his credit, though, Trump actually reacts to the bond market—but unlike his tariff pause after Liberation Day, the Iran war is obviously beyond his unilateral control. That’s why I suspect the bond yields will continue their upward trajectory for the foreseeable future. (As usual, this is not investment advice.)

In fact, spiraling Treasury yields might be the very thing that seals the political fate of the Republicans and Trump come November. That’s why I love the bond market; it reflects the collective wisdom of multitudes about events happening right now, as well as being a leading indicator of our collective future prospects. That’s also why I will highly recommend FT editor Robin Wigglesworth’s terrific new book, A Fabulous Debt, out September 22, one of the first comprehensive—and, yes, highly readable—histories of the bond market. You can preorder it here.
The A.I. tidal wave is coming for Wall Street: When I first wrote about Rogo, in January 2025, the young A.I. company was just setting its sights on Wall Street. Co-founded by Gabe Stengel, a former Lazard investment banking analyst (and the son of my friend Rick Stengel, the former State Department undersecretary and Time magazine editor), the startup arose from the hypothesis that analyst grunt work—drafting slide decks, researching S.E.C. filings, building financial models, etcetera—could soon be automated away. A few months later, Rogo raised a fresh $50 million at a $350 million valuation, led by Josh Kushner’s Thrive Capital alongside J.P. Morgan Growth Equity Partners, Tiger Global, and Positive Sum Ventures. (Rogo’s initial investors included Khosla Ventures, Box Group, and AlleyCorp.)

A year later, things seem to have accelerated considerably. At the end of April, Rogo announced a $160 million Series D round that valued the company at $2 billion, led by the esteemed venture capital firm Kleiner Perkins. In the announcement, Stengel disclosed that Rogo has been deployed at many of the world’s leading investment banks, asset managers, and private equity firms. “Finance runs on judgment, relationships, and insight,” Stengel wrote. “Over the last few decades, it’s also become an industry where some of the best people spend their time assembling decks and rebuilding models instead of talking to clients. A.I. changes that.”

He’s certainly right about the efficiency gains. Rogo, Claude, Gemini, and ChatGPT can already do in minutes the work that used to take junior bankers days to accomplish. But Wall Street remains, at its core, an apprenticeship business. The judgment and skill required to advise C-suite executives on transformative mergers, restructurings, and financing cannot be replicated by an A.I. agent. It takes years, often decades, to accumulate the sort of wisdom for which clients will pay millions.

Anyway, all this could lead to a very interesting conundrum down the road. In the old days, the most promising young bankers apprenticed themselves into more veteran roles, allowing the firms to sustain themselves over time. But if the bottom of the funnel is no longer being replenished as it once was, what will that mean for the high-margin and highly lucrative M&A advisory business, to say nothing of other aspects of investment banking? That’s a drama I am anxious to follow as it plays out over the next few years.

And now, the main event…

Spilling the Tea

Once a predictable cashflow business, Lipton has become a test case for how private equity leverage is holding up these days amid a less forgiving economic environment. The company’s new management team is confident they can turn things around.

William D. Cohan

I am a proud tea drinker—I’ve never had a cup of coffee in my life—and so I have been following with some fascination the financial drama that’s been unfolding at Lipton Teas and Infusions, one of the world’s largest tea producers. For more than half a century, the company was a division of Unilever, the sprawling food conglomerate. But in July 2022, Unilever sold it to private equity firm CVC Capital Partners in a €4.5 billion leveraged buyout. It’s hard to know for sure how CVC structured the financing, but it was probably along the lines of 70 percent debt and 30 percent equity. Lipton’s financials are now fully private (except for some bizarre filings in London with the Registrar of Companies for England and Wales).

Alas, since 2022, the company’s situation appears to have deteriorated significantly. As of last September, according to S&P Global, Lipton had something like €3.2 billion ($3.7 billion) in debt, with a nearly €1.6 billion Lipton-related loan trading these days at around 66 cents on the dollar and yielding in the 20 percent range. Not good. In late April, hoping to stave off a corporate debt restructuring, CVC injected €210 million of fresh capital into the tea maker, which owns PG Tips—the tea I drink regularly—along with Lipton, Tazo, T2, and Pukka. The infusion came in the form of €50 million of new equity and another €160 million of debt held at an affiliated company in the corporate stack.

Even before this recent infusion, S&P Global had concerns. In September, the ratings agency reaffirmed Lipton’s CCC+ long-term debt rating—firmly in junk territory—while downgrading its outlook to negative from stable. Indeed, last year was a rough one for the company: During the first six months of 2025, revenue fell roughly 13 percent year over year, to around €700 million, as Lipton faced “ongoing challenges in operating performance,” according to S&P Global. The agency projected that EBITDA for the year ending June 2026 would decline to “about €250 million” from €330 million previously, leaving leverage “elevated above 10.0x.” As for next year, S&P Global is forecasting only modest improvement, with EBITDA reaching between €260 million and €270 million as Lipton tries to “maintain gross profit margins of approximately 40 percent and reduce overheads through productivity improvements in manufacturing, simplification of distribution centers, and supply chain optimization.”

The New C-Suite

S&P Global also questioned the company’s liquidity, or the lack thereof, noting that it had almost fully drawn its €375 million revolving credit facility. The remaining availability on the revolver, plus some €91 million of cash on the balance sheet, gave the company about €110 million of “liquidity resources” as of September. That may sound like enough money, but S&P Global projected that Lipton needs more than €300 million to cover interest payments and capital expenditures, while free operating cashflow would remain around negative €100 million. “We forecast that the group’s liquidity coverage will be tight without any mitigating actions or if operating performance does not improve,” the agency said. “That said, we view the approval from shareholders to provide additional capital to support ongoing liquidity of the business as positive, although we understand this has not yet been provided.”

S&P Global went on to say it found Lipton’s “debt burden” to be “unsustainable” and its “credit metrics remain very weak.” The agency predicted Lipton’s debt-to-EBITDA ratio would remain elevated above 10.0x over the next 12 to 18 months thanks to a “soft consumer spending environment.”

The company’s management team has pretty much confirmed the bleak picture. In a recent presentation to creditors, C.E.O. Marc Busain and C.F.O. Johan Malmqvist—both appointed in October—shared that for the calendar year 2025, Lipton generated revenue of €1.4 billion and EBITDA of €252 million, implying a debt-to-EBITDA ratio in excess of 12x. That’s a lot of debt, even for private equity. For the first quarter of 2026, the company generated revenue of €333 million and EBITDA of €57 million, a quarterly pace that would put the 2026 EBITDA at around €230 million.

Busain, however, believes the company can reach €280 million of EBITDA in 2026, according to a company spokesman, based on an increased focus on “operation discipline,” renewed “investment” in “key customer relationships,” product innovation, and a significant increase in Lipton’s e-commerce and “out-of-home channels,” such as McDonald’s in Turkey and 7-Eleven in Japan. But even at €280 million of EBITDA, Lipton is wildly overlevered.

On the one hand, the Lipton creditors have been clamoring for CVC and its other investors to inject new capital into the company, so they are probably happy with the new money. And there’s the new management team, along with a new, seasoned board chairman in Grant Reid, the former C.E.O. of Mars Incorporated. On the other hand, the debt still trades at a discount and yields close to 20 percent, suggesting lenders remain deeply skeptical.

The truth is probably that the creditor group—a mix of banks and private-credit providers—is waiting to see whether the new management team can stabilize the business before conditions deteriorate further. “From a lender perspective, there is relief that there has been this capital injection,” the company spokesman told me. “But also there is that balance of needing to actually show that turnaround. The first-quarter performance has been heartening for a lot of [creditors], and I think there is a little bit of a sense that the worst is hopefully now behind them.” We shall see. As my readers are aware, leverage isn’t always your friend.

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