Wednesday, March 4, 2015

Carlyle Needs Oil Bottom for Backdoor Takeovers

CNBC interviewed Carlyle Grooup co-founder David Rubenstein on oil patch investments.  Yahoo Finance reported:

Carlyle Group's David Rubenstein told CNBC on Tuesday he is not waiting for oil to hit a bottom before investing in beaten-up energy companies.

"The great fortunes are usually made when prices are low. They're not usually made when you buy at the top and think they'll get higher," he said in a "Squawk Box" interview. "Prices are very low in energy, and a lot of people are scrambling, and that's where you make a lot of money."

Rubenstein has called distressed debt the single greatest new energy opportunity to invest," saying investors can by debt cheap and potentially take control of companies
Ask Brinton's founding family how that backdoor takeover went.  If oil companies conduct prepackaged bankruptcies with debt holders Carlyle must be at the table.  That means buying debt before the bottom, the triggering event that gives Carlyle the chance to pounce.  

Tuesday, March 3, 2015

Petraeus Remains Free to PEU

ABC News reported:

Decorated war veteran and former CIA director David Petraeus has entered into an agreement with federal prosecutors in which he would plead guilty to a misdemeanor charge for mishandling classified information.

The charge, unauthorized removal and retention of classified material, stems, in part, from documents the former director allegedly provided to his mistress
The misdemeanor charge follows his words of contrition:

In addition, in a private letter to a friend two weeks after his (CIA Director) resignation, Petraeus wrote: “I screwed up royally. ... I paid the price, appropriately.”
He's paid virtually no legal price, just as his private equity underwriter (PEU) employer KKR pays virtually no taxes.  They are free to PEU together, thanks to President Obama's "Just Us" Department.

Sunday, March 1, 2015

Ex-PEU Semiconducter Deal: NXP to Buy Freescale

Nasdaq reported:

NXP Semiconductors NV agreed on Sunday to acquire Freescale Semiconductor Ltd. in a combination that would create a chip giant with combined revenue of more than $10 billion.  

Private equity underwriters (PEU's) did leveraged buyouts on the two firms in 2006.  This was the period when PEU's did club deals to keep buyout prices down.  All the private equity firms charged in the collusion case settled out of court for nearly $600 million. 

After years of paying annual management fees and dividends to their PEU owners each company went public, NXP in 2010 and Freescale in 2011.  NXP's buyout of Freescale will be Carlyle and company's last chance for profit as PEU's hold 64% of Freescale's equity.

Robber Barons Game Tax Structure

Blackstone co-founder Steve Schwarzman took home five hundredths of one percent of his compensation in salary.  The rest of his $690 million in 2014 earnings is taxed at preferred, i.e. lower rates than salary.  Congress had eight years to reign in such obscenities, but instead catered to the PEU crowd. 

Saturday, February 28, 2015

Repurcussions of Private Jet Set Avoiding Oil Patch?

Bloomberg reporters noted the vast difference in the number of private jets at Davos, Switzerland and Midland, Texas.   Davos overflowed with the private jet set.  Oil stressed Midland is now a private jet black hole.

The oil boom last year was easy to see at the airport in Midland, Texas, the gateway to the biggest crude- producing region in the United States. The 30 or so spaces for private planes were often filled.

On one day in early February, a lone corporate jet sat on the tarmac, the empty spots a harbinger of the slowdown looming in a city that is 85 percent dependent on the oil and gas industry.
The article posed the number of private jets as a possible leading economic indicator:

Private aviation's role as canary-in-a-coal-mine is being watched closely again. Even as airline traffic rose at Midland International in January, business-jet takeoffs slid along with smaller non-commercial aircraft, according to data tracker FlightAware. Private flights are poised to drop again in February.
History suggests how private aviation can foretell the end of a boom. In 2008, months before Lehman Brothers's September bankruptcy filing became a signal moment of the global financial crisis, U.S. business-jet flying peaked in March, then fell in every month save one for the rest of the year.

Fewer private jets in Midland is a bad indicator for its oil based economy.

The city's dependence on a single commodity means the downturn "will be significant," said Karr Ingham, an economist based in Amarillo, Texas, who specializes in the region's oil economy. "I don't think there's any escaping that at this point even if prices were to turn and go back north again."
Mr. Ingham's economic model for the Midland economy utilizes airplane boardings but does track private jet parking occupancy rates.   He predicts future pain for Midland and the region.  The question is how far this pain will spread?

CNBC's Jim Cramer believes private equity underwriters (PEU's) are ready to snatch up distressed energy companies for pennies on the debt dollar.  Generally, someone's pain is another's gain, but not always.  Sometimes everybody losses, at least for a while.

Two other March 2008 events seemed bigger canaries for our national economy than business jet flying.  The collapse of Bear Stearns and Carlyle Capital Corporation portended the financial crisis.  Bad credit bets took down both.  Bear went into the arms of JP Morgan, while The Carlyle Group, itself a PEU, sent CCC into bankruptcy.

If PEU's come with their fresh billions to invest in the oil patch, will they arrive in private planes?  It's something to ponder.

Friday, February 27, 2015

Exxon Settles with NJ for 10 Cents on the $1

The State of New Jersey sued Exxon for $8.9 billion in damages for polluting wetlands by the thousands of acres.  A court already heard testimony and neared a ruling when Governor Chris Christie's office asked the ruling be held so a settlement could be reached.  Word has it Exxon will pay $250 million, a mere 9.6% of $2.6 billion in actual damages.  The state's request for $6.3 billion in compensatory damages will disappear.

Bloomberg reported:

The pollution is massive, and includes pesticides, chromium, arsenic and other hazardous substances, according to the opinion by former Union County Superior Court Judge Ross Anzaldi. 

“It was estimated in 1977 that at least some 7 million gallons of oil, ranging in thickness from 7 to 17 feet, is contained in the soil and groundwater underlying a portion of the former Bayonne site alone,” according to the opinion. 

“The documented level of contamination in the waters and sediment of the Platty Kill Canal in Bayonne is so high that Exxon has recommended permanently closing and filling in the canal with an impermeable barrier (estimating 50,000 cubic yards of impacted sediments),” Anzaldi wrote.

Justice or Just Us?  It looks like another case of the latter to me.

PEU'S at AIPAC 2015

The American-Israeli Political Action Committee runs from Sunday, March 1 to Tuesday, March 3.  Confirmed speakers of the PEU and ex-public service variety include:

Evan Bayh - Apollo Global
Eric Cantor - Moelis
Tom Donilon - BlackRock
Dan Senor - Elliott Management

AIPAC's website states that more than two-thirds of Congress attends their annual meeting.  It also highlights speaker National Security Advisor Susan Rice, UN Representative Samantha Power and Israeli PM Benjamin Netanyahu.

Last year's pictures show Senator John McCain, Secretary of State John Kerry, Senator Chuck Schumer, Joe Lieberman,  and Treasury Chief Jacob Lew.  Many of these public servants will become PEU's.