Friday, November 27, 2015

Carlyle's China Fishery Nearly Belly Up

Moody's downgraded Carlyle Group affiliate China Fishery for the second time in two months.  The first downgrade came in mid October.  It warned of a worsening financial situation.  That happened:

China Fishery Group Ltd. failed to repay a $31 million installment due earlier this month on a $650 million loan, according to Standard & Poor’s.
Moody's second and more dire downgrade came today.

On 26 November 2015, Pacific Andes International Holdings Limited (unrated), the parent of China Fishery, suspended trading in its shares and announced that one of the lenders of China Fishery had taken certain actions.

At the same time, Moody's notes from the auditing firm KPMG's website that Edward Middleton, Fergal Power, and Kris Beighton -- all KPMG employees -- have been appointed by the High Court of Hong Kong as joint and several provisional liquidators of China Fishery.

While the appointment of the provisional liquidators is intended to preserve the assets of the company, it also indicates that the process of debt restructuring has become more challenging.

In addition, the appointment of the provisional liquidators has triggered the acceleration of the repayment of its senior unsecured bonds due July 2019. 
Interesting that KPMG employees will liquidate China Fishery given that four KPMG senior partners were arrested for tax evasion in Ireland. 

China Fishery's ownership is as follows:

China Fishery Group Limited is headquartered in Hong Kong and listed in Singapore. It is engaged in the Peruvian fishmeal and fish oil business and fishing fleet operations. China Fishery is 46.5% effectively owned by the Pacific Andes group, through Pacific Andes International Holdings Limited (PAIH, unrated), a Hong Kong-listed integrated fish and seafood products processor. The Carlyle Group, a global alternative asset management firm, holds a 6.02% stake in China Fishery Group.  
Owners have fiduciary duty to repay bonds due July 2019. 

The company’s 2019 bonds were bid at 33 cents on the dollar as of 10:21 a.m. in Singapore, down 34 percent on the day, according to prices from SC Lowy Financial (HK) Ltd.
The Carlyle Group has billions in dry powder but I'll venture they let China Fishery die.

J. Crew Went PEU

Bloomberg reported:

J. Crew’s $500 million 7.75 percent senior unsecured bonds maturing May 2019 last traded at 25.5 cents on the dollar on Nov. 24, losing 60 percent in value this year, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities, which were issued in October 2013 at par, were trading above 90 cents on the dollar as recently as April. The precipitous fall marks J. Crew’s bonds as the worst-performing retail debt in the U.S.
Sumner 2014 found J. Crew floundering despite having the Obama girls don their clothing for the inauguration in 2013:

Mickey Drexler has amassed more than $350 million from the leveraged buyout of J. Crew Group Inc. even as he struggles to revive sales and restore the apparel chain’s fashion cachet.

Three years after taking the retailer private with private-equity firms TPG Capital and Leonard Green & Partners LP, J. Crew’s chief executive officer is battling slowing sales as shoppers decamp to more affordable, trendier rivals. 
It took a mere four years for J.Crew's staggering debt to become an anchor.  As for the meme that private equity are skilled operators consider these words:

Drexler acknowledged earlier this year that the flagship brand had gotten away from its classic roots, and that quality was wanting in some items while fits were wrong in others. 
Lest the children stay awake at night worrying about J. Crew, parents please tell them.

Drexler invested $11 million of his own money when he was named CEO in 2003. In the 2011 buyout, his stake was worth about $301 million -- he pocketed $202 million of that and rolled the rest into an 8 percent stake, according to company filings. He also got $55 million in dividends as part of the $681.5 million J. Crew has paid the owners since going private.

In all, Drexler, 69, has accrued about $380 million since becoming CEO, including options awards, salary and bonus, according to company filings and a Bloomberg News analysis. He and his private-equity partners have recouped over half their $1.23 billion investment.
Mickey and J. Crew's PEU owners will be OK.  Sleep tight.  

Monday, November 23, 2015

Free Beacon Causes Clinton PEU to Disappear from Web

It took less than a week for the Clinton Foundation's Colombian PEU to vanish from the internet.  Last Thursday the Washington Free Beacon reported on Fondo Acceso, a private equity firm half owned by the Clinton Foundation.  That information is no longer available.  However, this is:

How many donors gave to the Clinton Foundation so they could buy and flip Colombian companies?  It's fitting as private equity underwriters are virtually tax free operations in the U.S. and their fees are as mysterious as the Clinton Foundation's vanishing PEU.

Sunday, November 22, 2015

Hillary Clinton is Wall Street

Democratic Presidential hopeful Hillary Clinton botched her debate question on her longstanding ties to Wall Street and her reliance on their campaign donations.

CLINTON: So I represented New York, and I represented New York on 9/11 when we were attacked. Where were we attacked? We were attacked in downtown Manhattan where Wall Street is. I did spend a whole lot of time and effort helping them rebuild. That was good for New York. It was good for the economy, and it was a way to rebuke the terrorists who had attacked our country.
The reaction to Hillary's wrapping her ties to the greed and leverage boys in a 9-11 flag was swift.  WaPo reported:

Wall Street is not a warm and fuzzy friend in need of comfort in the minds Americans still digging themselves out from the Great Recession and monstrous housing crisis.

... just the day before Saturday's debate, millions of Americans watched in horror as France, this country's first ally, endured its own large-scale terrorist attack. Especially in this context, it was not -- and on this there really is little room for debate -- appropriate to summon the memories of 9/11 or the fallout from a terrorist attack to explain her connections to Wall Street and its campaign cash
A week after the debate NYT ran a piece on Hillary's Wall Street "image problem."  This piece made no mention of The Clinton Foundation, which employs similar methods as Wall Street by raising and accounting for funds. 

NYT did not mention the Clinton Foundation having to refile years of tax returns with the IRS for omitting donations from foreign governments, some unauthorized, while Hillary served as Secretary of State.  The Clinton's skirted the agreement that allowed the foundation to keep raising money from foreign governments and circumvented the ethics procedure within the State Department for approving Bill Clinton's speeches.

The Clinton Foundation also funnels donor money to friends and insiders.   

And efforts to insulate the foundation from potential conflicts have highlighted just how difficult it can be to disentangle the Clintons’ charity work from Mr. Clinton’s moneymaking ventures and Mrs. Clinton’s political future.
Fall 2013 saw Hillary move into offices at the foundation’s new headquarters in Midtown Manhattan, occupying two floors of the Time-Life Building. Hillary is in close proximity to Wall Street.

The foundation, which has 350 employees in 180 countries, remains largely powered by Mr. Clinton’s global celebrity and his ability to connect corporate executives, A-listers and government officials.
Recent revelations show The Clinton Foundation a 50% owner and sole manager of a $20 million South American private equity firm, Accesso.   The Clinton Foundation holds an equity stake in two Colombian companies, Alimentos SAS and Fontel SA.

Many of the Clintons' speeches the last decade have been to private equity audiences.  Bill Clinton advised Ron Burkle's Yucaipa and Teneo.  Chelsea worked for Avenue Capital and sits on the IAC board.  Hillary spoke to numerous PEUs after retiring from public service.

The Clintons are Wall Street, plain and simple.  It's not an image.  It's a fact.

Note:  PEUReport found an undeclared speech Bill Clinton gave to The Carlyle Group and has numerous posts on the Clinton Foundation.

Wednesday, November 18, 2015

Clinton Foundation Runs $20 Million PEU

The Washington Free Beacon reported:

The Clinton Foundation is operating a $20 million private equity firm in Colombia, raising concerns from government and consumer watchdog groups who say the practice is unusual and could pose a significant conflict of interest

The line between the firm and the Clinton’s nonprofit world is hazy. Fondo Acceso is run out of the Clinton Foundation’s Bogota office and staffed by foundation employees, a representative at the office told the Washington Free Beacon on Tuesday. 
The Clinton Foundation has long been full of conflicts of interest and slipshod accounting.  Those are necessary to send big money to friends.

The firm is managed by Carolina Botero, who is also chief financial officer at the Clinton-Giustra Enterprise Partnership. It lists various Clinton Foundation and CGEP officials as directors in its corporate filings. The Clinton Foundation’s tax returns list Fondo Acceso as a related corporation in which the foundation holds a 50 percent stake.

Colombian companies that want to apply for venture funding from the Fondo Acceso must also sign a contract turning over financial and internal information to both the private equity firm and the Clinton Foundation.
Here are Accesso's affiliates as of a July 2012 presentation:

There's a new method for taking advantage of banana republics, the PEU way.

 The Clinton's helped create the system, thus they know how to navigate PEU waters.

Carlyle's PQ Corporation Fined $1.7 Million for Pollution

Philadelphia Business Journal reported:

The Pennsylvania Department of Environmental Protection (DEP) has fined chemical company PQ Corp. $1.7 million for air quality violations in Chester, Pa.

According to quarterly emissions reports submitted by PQ to the DEP, the Malvern-based company exceeded several permitted emission limits for pollutants like carbon monoxide and nitrogen oxides, and failed to satisfy the data availability requirements for their systems. The assessment covers the period between August 2011 and June 2013.

It is majority owned by private equity firm The Carlyle Group, which bought the company in 2007 for $1.5 billion.
In this case PEU stands for PEU.  The company happens to be owned by The Carlyle Group and a smattering of private equity underwriters.

Tuesday, November 17, 2015

Carlyle Faces Credit Questions

 Bloomberg reported:

After two weeks of trying to peddle debt backing the largest private-equity buyout of 2015 Wall Street’s biggest banks have given up -- at least for now.

Lenders led by Bank of America Corp. and Morgan Stanley postponed marketing $5.5 billion of loans and bonds they underwrote to finance Carlyle Group LP’s takeover of Symantec Corp.’s data-storage business as investors shy away from riskier corporate debt.
The fall 2008 financial crisis happened when the big money boys no longer trusted one another to make good on their debt, much less their credit bets.

Carlyle affiliate Accudyne had its debt downgraded by Moody's:

Moody's expects further revenue declines and earnings erosion, along with sustained high financial risk. Cash flow is unlikely to meaningfully reduce debt. The business also faces currency transaction risk as a substantial portion of sales are denominated in currencies other than the US dollar.
The Carlyle Group also sponsors Project Service, which came under fire for not paying subcontractors renovating Connecticut rest areas.

As the nearly $150-million job is at its end, subcontractors who are still owed a collective $5 million for work they have completed use less-than-glowing words to describe the two corporations that ran the six-year project: Centerplan Construction Co. of Middletown and Project Service LLC of Milford.
Lastly, Carlyle GMS Finance reported in its latest 10-Q:

On September 25, 2015, the Company issued a capital call and delivered capital drawdown notices totaling $26 million.
The credit noose is tightening.

Update 11-19-15:  Reuters reported on investors reduced appetite for risky debt.  "On top of that, the recent sharp drop in prices of riskier debt has left some nursing losses." Journal Media reported "Revenue for S&P 500 companies has shrunk in all three quarters so far this year."  ZeroHedge reported "Goldman admits this (record low negative swap spreads) signals funding and balance sheet strains are worsening since August."

Update 11-21-15:  Institutional Investor ran a story on the pause in PEU out-performance since the financial crisis.  Their story said PEU deals are up to 10x EBDITA but the big players cans still source financing.  Have they read about Carlyle's struggling Veritas deal?