Saturday, May 23, 2015

Carlyle's Refinery Has 3rd Fire in 2015

Philadelphia Energy Solutions' refinery, a joint venture between Sunoco and The Carlyle Group, experienced its third fire this year.  As usual Carlyle's name did not make the banner screen.  Sunoco got full billing.  

Bakken oil is more volatile for shipping and pipelines.  It might also be more explosive in refining.

Tuesday, May 19, 2015

ETEORRA is Really Trade Promotion Authority

When leaders resort to deception it's time for citizens to be concerned.

Update 5-22-15:  Senate passed the bill giving President Obama the power to complete his trade pacts.  The NYT article never gave the name of the bill.

Sunday, May 17, 2015

Wesley Clark Joined Jeb Bush as InnoVida Consultant

Bloomberg reported on General Wesley Clark's numerous board seats and consulting arrangements.  One of those, InnoVida, took in Jeb Bush, first as a consultant and then a full fledged fiduciary board member.

Clark says he also sensed trouble at privately held InnoVida, whose product—a new type of building material—he once pitched to the president of Haiti. After further researching the company, Clark says he rejected an invitation to be on the board. InnoVida’s founder is serving a 12-year prison sentence for fraud. 
 Bloomberg left off the Jeb Bush connection.  Did Bloomberg extend a courtesy to Jeb whose InnoVida settlement included a non-disparagement clause? 

Consider InnoVida a portal into the Government-Corporate Monstrosity.  It's American branded but clearly global in nature.  As I've written many times, politicians Red and Blue love PEU.

How Management Produced Massive Toxic Coal Ash Spill

Charlotte Business Journal reported:

Duke Energy’s glaring failure leading to its massive coal-ash spill and other environmental violations is the company's repeated decision against conducting a $20,000 video pipe inspection at the Dan River Steam Station.
GE's Jeff Immelt, said in 2010, four years before Duke Energy's 39,000 ton toxic coal ash spill.:

We are at the end of a difficult generation of business leadership, and maybe leadership in general. Tough-mindedness, a good trait, was replaced by meanness and greed, both terrible traits.
Rewards became perverted. The richest people made the most mistakes with the least accountability. In too many situations, leaders divided us instead of bringing us together.
Consider what knowledgeable employees repeatedly recommended to Duke's management:

In May 2011, the engineers assigned to review coal-ash operations at the plant first recommended the video examination of the pipes. When they were overruled for budget reasons, the plant manager warned the person who made that decision that the inspection was necessary, that Duke did not know the condition of the pipes and that “if it failed there would be environmental issues,” Rangarajan said.
The same engineers made the same recommendation in 2012 and again were overruled
Thus, they were trained not to make the recommendation a third time.  Senior executives denied the request for money.

The decision was bounced around because of the corporate policy at Duke — which took many plant decisions away from engineers who knew the local operations. And it got tangled up in Duke's unexpectedly difficult merger with Progress Energy, which clearly absorbed a lot of corporate attention.

The final decision against running a camera through the pipes at Dan River in both 2011 and 2012 was made by the vice president at Duke in charge of plants that were closing during the merger and integration. 
Duke has declined to identify the person who made that decision, or those who advocated for the inspection, except by title.
Substitute ignorance and greed.  How much bonus money did this Vice President receive from 2011 to 2014?  That number is not included in Duke Energy's SEC filings, however Chief Financial Officer Lynn Good, the one who ensured budget performance, got nearly $1.85 million in non-equity performance awards and $3.5 million in stock awards from 2010-2012.  

Consider what Duke said about the merger in its 2011 10-K.  First up is fear of job loss:

Employee retention and recruitment may be particularly challenging prior to the completion of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company. If, despite Duke Energy’s retention and recruiting efforts, key employees depart or fail to accept employment with Duke Energy because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, Duke Energy’s financial results could be affected. 
Second is the prime directive:  Money:

The pursuit of the merger and the preparation for the integration of Progress Energy into Duke Energy may place a significant burden on management and internal resources. The diversion of management attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could affect Duke Energy’s financial position, results of operations or cash flows. 
Duke Energy's 2012 Annual Report lists a Vice President who is no longer with the company:

Lee T. Mazzocchi -- Senior Vice President and Chief Integration and Innovation Officer
Charlotte Business Journal reported Mazzochi took this role in early 2011.  It's ironic the media source that interviewed him could not connect the dots.  An additional irony comes from Duke Energy receiving an award five months before the Dan River toxic coal ash deluge.

“Sustainability continues to be a priority for Duke Energy. It helps us create value throughout the company, and do business in ways that balance the interests of customers, shareholders and the environment,” said Lee Mazzocchi, senior vice president and chief integration and innovation officer. “The plans, decisions and actions of our 28,000 employees demonstrate our commitment and lead to our sustainability achievements.”
Mazzochi made the 2013 Annual Report photo but not the 2014 report.  Duke Energy had a year to explore the executive decision making chain that resulted in the massive coal ash spill.  They won't say who did it, but corporate priorities are the clear cause.

Changeover at the top occurred July 1, 2013 with the appointment of Lynn Good as President and CEO.

"I have a high degree of confidence in the strength of our company's leadership and dedicated employees." "I will work to ensure Duke Energy is positioned to continue its track record of outstanding customer service and operational and financial excellence," Good added.

Good, 54, has served as Duke Energy's executive vice president and chief financial officer since July 2009.
Good created the budget that overruled the inspection of the pipes.  The coal ash spill happened February 2014.  Fortune dinged Good's silent response to the event, but told other hero stories about her intelligence and decision making abilities.

"Suddenly, it was all about crisis management,” Good says. “It’s something that never should have happened. That’s not what Duke Energy is about.”
Three months after the spill Good spoke to MBA graduates at UNC.  She highlighted everyday heroes:

Every one of you has the capacity to be a courageous leader. And although there is no magic formula – for me, it is built on a sense of purpose, conviction to do the right thing, a call to action to shape your future, and a call to empower those around you.
Good's Duke Energy did none of those things in response to potentially heroic engineers.  Duke Energy's mean and greedy leaders spewed toxic coal ash into the Dan River, doing so under the guise of continuous improvement.  The Justice Department press release stated:

“Duke Energy's crimes reflect a breach of the public trust and a lack of stewardship for the natural resources belonging to all of the citizens of North Carolina,” said U.S. Attorney Thomas G. Walker for the Eastern District of North Carolina.  “The massive release at the Dan River coal ash basin revealed criminal misconduct throughout the state – conduct that will no longer be tolerated under the judgment imposed by the court today.”
Good rotated Lee Mazzocchi off the leadership team in time for the $102 million EPA settlement. Heroes tell the truth, accept responsibility and make things right.  This is not the case in the Dan River coal ash spew, not from Duke Energy or the EPA.  Duke Energy cleaned up a mere 7.7% of the spill, while the EPA defined coal ash as nonhazardous.

Frankly, it has the feel of misplace management priorities and bad leadership, signature aspects of private equity underwriters.  That is punctuated by another Duke Energy settlement of $146 million.  Bad faith is bad faith and Duke Energy will pay nearly $3.8 for its series of management misdeeds.

Tuesday, May 12, 2015

Health Care Fraud Perpetrated by PPACA Designers

Recall the role health insurers played in the design of President Obama's health reform, The Patient Protection and Affordable Care Act, abbreviated as PPACA.  One company discovered a multi-decade fraud employed by Blue Cross Blue Shield of Michigan.

It turns out that one of the reasons workers have been paying more for their coverage is allegedly a common practice among insurers:  charging their employer customers unlawful hidden fees.

The fees came to light when Hi-Lex Controls, an automotive technology company, took Blue Cross Blue Shield of Michigan (BCBSM) to court in 2013 after becoming suspicious that the company had been systematically cheating it over 19 years. After reviewing evidence in the case, a judge ordered that BCBSM stop charging the hidden fees and pay Hi-Lex $6.1 million.
This is the group President Obama's PEU health reformer Nancy-Ann DeParle embraced wholeheartedly in creating PPACA.  What did these long term cheats do to ensure their profitability at the expense of the "customer"?  They stole long before PPACA and likely rigged new features to ensure their profits. 

It's also one more case of healthcare fraud where no one goes to jail. 

Monday, May 11, 2015

Carlyle Co-founders Lose Two Senior Executives

The Carlyle Group lost co-President Michael Cavanaugh and Chief Financial Officer Adena Friedman, two leaders touted as Carlyle's future when hired for top positions.  Cavanaugh took the CFO job at Comcast while Friedman returned to NASDAQ as CEO.  Seeking Alpha reported:

Two of the group of five expected to be the next generation of Carlyle's leadership - and for whom Carlyle created an entire financial structure to retain them - have now left. 
Working for the DBD's must be a challenge, helping each one move up the billionaire lists.  Can they pay anyone enough to do that job?

Sunday, May 10, 2015

PEU Karma for Deals Gone Bad

Several private equity deals unraveled badly for investors.  Among these are Apollo Global Management's Caesars Entertainment, The Carlyle Group's Carlyle Capital Corporation and Energy Future Holdings, owned by KKR and TPG.  All three went bankrupt.

Bloomberg reported that bond holders are reluctant to buy deft from Apollo Global affiliates.

Apollo Global Management LLC is meeting with some of the bond market’s biggest investors to smooth over strained relationships amid accusations it has shortchanged creditors of some of its biggest corporate buyout.

The private-equity firm co-founded by Leon Black will travel to the offices of money managers who buy high-yield debt, seeking to persuade them that the bonds and loans issued by its companies are worthwhile investments.

A group of bondholders in a bankrupt unit of Caesars Entertainment Corp., the casino operator Apollo and TPG Capital took private for $30.7 billion in 2008, has claimed in lawsuits that the business was stripped of billions of dollars in assets before the Chapter 11 filing in January.
Dallas Morning News provided the latest twist on Energy Future Holdings bankruptcy proceedings.

A U.S. bankruptcy judge put Energy Future Holdings’ restructuring plan on hold Monday, giving creditors more time to work on an alternative strategy to conclude the Texas electricity giant’s $42 billion bankruptcy case.

The ruling comes a little more than a year into what is one of the largest bankruptcies in U.S. history, pitting some of Wall Street’s biggest names against each other. In 2007 private equity firms KKR & Co. and TPG paid $40 billion to take over the former TXU Corp. through a leveraged buyout, betting that Texas power prices were poised to rise. They were wrong. 
Carlyle Group's latest 10-K included an update on their legal troubles with the failure of Carlyle Capital Corporation, a highly leveraged mortgage backed security scheme.

The Guernsey liquidators who took control of CCC in March 2008 filed four suits on July 7, 2010 against Carlyle, certain of its affiliates and the former directors of CCC in the Delaware Chancery Court, the Royal Court of Guernsey, the Superior Court of the District of Columbia and the Supreme Court of New York, New York County (Carlyle Capital Corporation Limited v. Conway et al.) seeking $1.0 billion in damages. They allege that Carlyle and the CCC board of directors were negligent, grossly negligent or willfully mismanaged the CCC investment program and breached certain fiduciary duties allegedly owed to CCC and its shareholders. The liquidators further allege (among other things) that the directors and Carlyle put the interests of Carlyle ahead of the interests of CCC and its shareholders and gave priority to preserving and enhancing Carlyle’s reputation and its “brand” over the best interests of CCC.

The Court (Royal Court of Guernsey) has set the case schedule and trial is scheduled for the first available date after February 1, 2016.
Carlyle's insurers have been freed from covering any liability in a case where plaintiffs "accused Carlyle of falsely promising high returns with little risk, failing to warn about the fund’s dimming prospects and ignoring the threat posed by deteriorating market conditions."

The wheels of justice rotate slowly and stiffed creditors have options while they turn.  They don't have to buy PEU debt without a risk premium.