Sunday, January 14, 2018

Saudis Going to Davos, bin Talal Lands in High Security Prison


Saudi Prince Alaweed bin Talal has been transferred to a high security Al Ha'ir prison.  News report indicates Prince Alwaleed's leverage to demand a trial or negotiate a deal is "dwindling by the day." 

Trial by jury used to be important to our federal republic and a key feature of international expectations.  It's clear strong counter-puncher President Donald Trump will not intervene on the Prince's behalf.

The Saudis will send a delegation to the 2018 World Economic Forum in Davos, Switzerland.  ArabNews reported:

Saudi Arabia has accepted an invitation on behalf of senior policymakers, in addition to official WEF partners like Saudi Aramco and Saudi Basic Industries Corporation (SABIC).
In addition to placing bin Talal in a high security prison the Saudi government has taken over BinLaden Group, the country's largest construction company.

Holding people without trial and seizing family owned corporate assets should be important to a group concerned about economic fairness and justice.  The Davos boys have long been a club that enriched one another.  Few high profile people have spoken out on Prince Alaweed bin Talal's behalf.

If Davos is true to form attendees will cater to louts who can push money their way, ignoring how such leaders flout basic civil liberties. 

Thursday, January 11, 2018

Trump's Billionaires Boys to Club at Davos


President Donald Trump's economic team will join him in Davos, Switzerland for the annual World Economic Forum meeting.  Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross will chaperone America's petulant President/Commander in Chief.

Here's what CNBC had to say about Ross in 2014:

Billionaire vulture investor Wilbur Ross knows a crisis when he sees one. He likes to buy stuff when a crisis becomes more like desperation. And he's really good at it. That's why he's rich.

Half billionaire Steven Mnuchin earned the nicknamed “foreclosure king” for purchasing distressed mortgages during the financial crisis and evicting thousands of homeowners.

The last time Trump's billionaire boys hung out with their peers was the Milken Global Conference, sometimes called "Davos with better weather."

Might Trump express his gratitude given the Davos boys created the fertile conditions that got him elected?  The Clinton Global Meeting grew to Davos like stature, a place to rub elbows and push money around to friends.

There's irony in Trump is attending the very meeting he slammed as a Presidential candidate, more proof that election promises stay with the campaign. Both the Red and Blue political teams do it.

Energy Secretary Rick Perry attended Davos in as Texas Governor.  Governor Perry gifted The Carlyle Group's Vought Aircraft with $35 million.  Rather than create 3,000 new jobs Carlyle cut 35 positions.  Perry gave Carlyle $1 million per job eliminated over a six year period.

Those who aren't yet in the billionaire class, serve the billionaire class.  Trump's team will be in Davos to serve the uber-rich.  

Wednesday, January 10, 2018

Carlyle Group Writes Down 93.5% of China Fishery

FT reported

The Carlyle Group, the private equity firm that spent $186.6m on a minority stake in China Fishery in 2010, has reduced the valuation of its own investment to $12m, according to documents it has sent investors. 
That's nearly a 94% asset write down.   Debt can become worthless when the asset base evaporates.

One private equity executive in Hong Kong describes the group’s finances as “a spaghetti structure”. His company looked at buying China Fishery last year before deciding that the debt burden was too heavy. “It is difficult to sort out the inter-company loans, there is a lot of debt at every level and the [value of its] hard assets are low compared to the level of borrowing, which is insane,” he says. “Why would anyone underwrite that much debt?”
That's a question for Carlyle and our PEU economy.  It's interesting to hear a private equity executive criticize his industry's business model.  How often do the greed and leverage boys accuse one another of excess?

Monday, January 8, 2018

Two Weeks to Davos, Where Billionaires Yearn


The World Economic Forum Annual Meeting will reconvene in Davos, Switzerland on January 23rd.

Socially, citizens yearn for responsive leadership; yet, a collective purpose remains elusive despite ever-expanding social networks. All the while, the social contract between states and their citizens continues to erode.
Translated:  Leaders don't listen to the people they supposedly serve.  Instead they focus on the needs of their super rich donors who are likely to employ them post public service.  The eroding social contract makes citizens fearful and angry, especially as nearly all economic gains have gone to the wealthy and uber wealthy.  Davos is a gathering of these two groups, political leaders and the super rich, many of whom are corporate chiefs.  That's the group that refused to raise their hands when asked if they would use the tax cut to increase worker pay. 

Davos 2018 has the following plans:

We can shape the future by joining this unparalleled global effort in co-design, co-creation and collaboration
The Davos crowd co-designed a political system that only listens to money.  They co-created a world that caters to billionaires and their needs to have more.  They fractured the world over the last two decades.  The public just began to notice on a widespread scale what the greed and leverage boys have accomplished.

Do you trust the group that employed greed to fracture the world to repair their damage?  It looks like a Gary Cohn gathering, most of you have your hands down.

Update 1-9-18:  President Trump will attend Davos.  Might Trump express his gratitude given the Davos boys created the fertile conditions that got him elected.  The Clinton Global Meeting grew to Davos like stature, a place to rub elbows and push money around to friends.  The irony is Trump is attending the very meeting he slammed as a Presidential candidate.  More proof that election promises stay with the campaign. 

Sunday, January 7, 2018

Carlyle Backdoors Bis Industries


The Carlyle Group used discounted debt to take over Australian Bis Industries.  Their press release stated:

The Carlyle Group built its position in the senior bank debt of Bis over the course of a year to become one of Bis’ largest senior secured creditors and played a key role in implementing a comprehensive restructuring. In total, senior secured creditors (including Carlyle and Värde Partners) own 96% of the shares in Bis.
Carlyle pushed out KKR by purchasing deeply discounted debt.  It turned the cheap debt into an equity position.  

The Carlyle Group struggles to hold on to ManorCare, which is way behind on paying its creditors.  Centerbridge Partners provided ManorCare a $550 million line of credit which is keeping Carlyle's ownership in place.  Carlyle partnered with Centerbridge to make a mint from BankUnited, courtesy of a multi-billion subsidy from Sheila Bair's FDIC.  

At the end of 2017 Morgan Stanley Wealth Management held no, as in zero junk bonds, the debt used to fund private equity buyouts.  Leverage is a tool that makes big money when valuations expand.  It is an equity eliminator when valuations plummet.    

The Carlyle Group just closed a $800 million CLO fund which invests in packaged corporate debt.  I expect Carlyle will take over more distressed companies via backdoor debt, as it did to Brintons' and Mrs. Fields.  The Brintons' founding family can commiserate with KKR as having been taken over from PEU Trojan debt.  

Billionaires need to make more money.  The manner does not matter. 

Saturday, January 6, 2018

PEU Good Times Roll

Reuters reported:

The global private equity industry raised a record $453 billion from investors in 2017, leaving it with more than $1 trillion to pour into companies and new business ventures, data from industry tracker Preqin showed on Thursday. 
Private equity underwriters (PEU) had their best fundraising year since 2007 when the greed and leverage boys raised $414 billion.  That year saw PEUs doing club deals to reduce bidding and using risky debt to buyout companies.

In July 2007 CNN Money reported:

Investors are starting to shy away from risky debt, raising worries that some of the biggest deals will have trouble securing financing. Congress is muscling ahead with tax rules on private equity, and interest rates are ticking higher around the world.
Congress never muscled private equity in 2007.  Instead the House and Senate catered to billionaire PEU founders after they descended on Capital Hill.  In 2010 Carlyle Group co-founder David Rubenstein was reported to say at the Washington Economic Club, when Congress took another run at eliminating preferred PEU taxation:

“That was a senator. That one call just saved us on carried interest.”
Back to summer 2007, when comments included:

But while market conditions are starting to wobble, activity has not waned. "The bubble isn't bursting, a little air is just being taken out of an inflated balloon." 

Some expect the turbulence in the credit market to be short lived. "There's growing risk aversion and the market is going through a reality check. But there don't seem to be any major cracks in the system and the markets aren't dramatically different than they were a few weeks ago."  
Carlyle Capital Corporation's balloon burst in March 2008, when it declared bankruptcy.  It was a harbinger of the much wider economic crisis that bomb cycloned in September 2008.

2018 finds Morgan Stanley Wealth Management exited its corporate junk bond position, the very debt PEUs use to fund buyouts.

Credit crisis explode when the big money boys no longer trust one another to make good on their debt.  If history is a guide such a crisis could occur within a year to fifteen months.

Update 1-6-18:  ZeroHedge report stock allocations are approaching Dot Com levels

Thursday, January 4, 2018

Junk Bonds at PEU Top?


Trouble starts when the big money boys no longer trust each other to make good on their debts.  Morgan Stanley Wealth Management indicated that this phenomenon could be approaching with its exit of junk bonds:

We recently took our remaining high yield positions to zero as we prepare for deterioration in lower-quality earnings in the U.S. led by lower operating margins.”
Private equity underwriters float junk bonds to fund buyouts.  When PEU affiliates fail they end up in the hands of bondholders.  Ironically, this opens the door for an affiliate to pass from one PEU to another.  The equity holding PEU loses out while the bondholding PEU takes control in an affiliate bankruptcy.

Once the junk bond falls far enough PEU sharks will enter the water hoping for a back door takeover.  Carlyle took control of Brinton's and Mrs. Fields in such a manner, but is in line to lose control of ManorCare for failure to meet its lease obligations. C'est la vie...in our PEU world.

Update 1-9-18:  Chapter 11 bankruptcies rose to Great Recesssion levels and commercial bank lending to corporations is stalling out.