Thursday, November 14, 2019

Carlyle Group's New Healthcare JV Raised ER Bills

BusinessWire ran the following press release on The Carlyle Group's latest healthcare venture:

Cannae Holdings, Inc. (NYSE:CNNE) (“Cannae” or the “Company”) today announced that it has entered into an agreement to participate in a health care joint venture with an investment vehicle advised by an affiliate of The Carlyle Group and another investor with deep health care services experience. The joint venture will focus on acquiring, integrating and operating synergistic health care services companies in the provider and payer space.

Cannae will contribute its T-System business to the joint venture and Cannae’s joint venture partners will contribute equity capital to enable it to acquire other complementary health care services companies. As part of this effort, T-System has also entered into a definitive agreement to acquire a leading provider of coding and clinical documentation services to domestic health care providers which will be funded by the joint venture. 

At closing, it is anticipated that Cannae will be a minority shareholder of the joint venture and have all of its T-System intercompany debt repaid, which totaled approximately $60 million as of September 30, 2019. The investment vehicle affiliated with The Carlyle Group will be the majority controlling shareholder of the joint venture. 
T-Systems helped increase ER bills by $24.8 million for residents of Savannah, Georgia.  The case study showed how Carlyle's new JV will not bring healthcare costs down:

A few months after transitioning to T-System’s RevCycle+® service, Memorial University Medical Center’s revenue quickly increased to the numbers T-System had estimated. And, just a few months later, revenue continued to improve even further to $1,269 per patient visit, from the original baseline of $1,040 per patient visit.
• $24.8 million gross annual revenue increase:
• $259 increase per patient for facility E/M charges\
• $31 increase per patient for facility procedure charges
• $502 increase per patient for observation services charges
A higher level of service was assigned for about 65 percent of the ED patients, and a lower level of service was assigned to three percent. Also, a higher level of service was assigned for about 70 percent of observation cases.
Healthcare is no longer about serving people.  At a recent reunion I asked healthcare professionals: "How has healthcare changed over the last few decades?"  Nurses, physicians and nurse practitioners said universally.  "It's all about money and numbers."

That's because the greed and leverage boys have infected healthcare.  The system may be septic.

Sunday, November 10, 2019

Carlyle's Acosta to Enter Bankruptcy

The Carlyle Group will hand another affiliate back to creditors/bondholders.  PR Newswire reported:
Acosta's "pre-packaged" Chapter 11 Plan of Reorganization (the "Plan")
Acosta, Inc. ("Acosta" or the "Company"), a full-service sales and marketing agency, today announced that it has reached an agreement with more than 70% of its lenders and more than 80% of its noteholders, each by principal amount, on the terms of a comprehensive reorganization and recapitalization.  The deal will eliminate all of the Company's approximately $3 billion of long-term debt.  Further, investors have committed $250 million in new equity capital backstopped by institutions committed to the long-term success of Acosta.
The piece offered no word on how many billions Carlyle pulled from Acosta prior to bankruptcy (September 2014 to present).  Also, the release made no mention of The Carlyle Group.

New York City Retirement Systems invested $330 million in Carlyle's fund that owned Acosta.  A 2017 Q3 report showed the negative impact of Carlyle's ownership of Acosta:

Carlyle Partners VI, L.P. - Side Car, a 2014 Co-Investment partnership, generated a net value loss of $0.03 million during the third quarter of 2017. Acosta, Inc. drove performance as the holding was written down 11% to $226.4 million as of September 30, 2017.
Another PEU Sponsor fail for Carlyle.  How many people got hurt?  Recall LifeCare Hospitals, Carlyle Capital Corporation, ManorCare, Philadelphia Energy Solutions and now Acosta. 

Tuesday, November 5, 2019

Ex-Medicare Chiefs Love PEU

Presidents George W. Bush and Barack H. Obama enacted significant healthcare reform in their terms in office.  Bush added the Medicare Prescription Drug benefit known as Medicare Part D.  Bush's Medicare Chief Tom Scully stepped down after Congress passed Part D.

Obama enacted the Patient Protection and Affordable Care Act (PPACA).  His White House Health Reformer Nancy-Ann Deparle was a former Medicare Chief under President Bill Clinton.  For a time Marilyn Tavenner and Andy Slavitt served as Obama's Medicare head.

What do these four individuals have in common?  Private equity underwriters (PEU).

Tom Scully - General Partner Welsh, Carson, Anderson and Stowe (WCAS)
Nancy-Ann Deparle - Partner and co-founder Consonance Capital
Andy Slavitt - Founding Partner Town Hall Ventures
Marilyn Tavenner - Board of LifePoint Hospitals, an Apollo Global affiliate, and Board of  Select Medical, a WCAS affiliate
The Atlantic reported PPACA passed due to:

"compromises that led to the ACA, executed by Obama and his then–chief of staff, Rahm Emanuel, are what staved off a full-scale medical-industry uprising against the bill."
PPACA was designed by for-profiteers for PEUs.  The greed and leverage boys have had a field day on citizen's wallets.  Surprise medical billing, thank Blackstone and KKR.

President Donald J. Trump's Medicare Chief Seema Verma:

"blasted "Medicare for All" even as some Democratic presidential candidates continue to propose the idea for healthcare reform. 

"I’m always very concerned that we’re hearing conversations about more government, more Medicare for All. I think those kinds of things are very scary to me,” she said. "We need to put patients in control of care, not the government."
Patients in control?  The only control I have is paying more and more out of pocket for the same limited care I access every year.

For that right I become an instrument in an algorithm.  Humana's Chief Strategy Officer said the company wants to be a healthcare company with elements of insurance:

"Part of predictive analytics is getting close to the member. We're partnering with organizations outside of healthcare where, with the member's consent, we can identify information they are sharing with us. Proximity is the key to predictive ability," 
Having my health insurer emulate the NSA?  That is very scary to me, as is the parade of PEU paid former Medicare Chiefs.

Healthcare is an absolute Gordian knot and it grows larger every year due to greed.

Around 45% of Americans said a major health-related expense could potentially lead to bankruptcy, according to a Gallup poll. Health care expenses can break the bank at any age, but they're especially detrimental to older Americans –- retirees in particular.
America's for-profit healthcare landscape is a trail of tears for many seniors who go bankrupt, even with health insurance coverage.

Two-thirds of people who file for bankruptcy cite medical issues as a key contributor to their financial downfall.

A new study from academic researchers found that 66.5 percent of all bankruptcies were tied to medical issues —either because of high costs for care or time out of work. An estimated 530,000 families turn to bankruptcy each year because of medical issues and bills, the research found.
Scully, Deparle, Slavitt and Tavenner don't have bankruptcy worries.  They count piles of cash from the very PEU healthcare profits breaking seniors bank accounts.

Former Medicare Chief Gail Wilensky sold ManorCare to The Carlyle Group as a board member.  Eleven years later Carlyle bankrupted the nursing home giant and Mrs. Wilensky had over a decade to grow her nearly $3.4 million in proceeds from ManorCare's PEU buyout.

Carlyle just added a huge insurance broker to its PEU family.  The Hilb Group offers health insurance.  Hilb's website states:

Like magic, you can increase benefits while reducing total costs. 
I work for a PEU affiliate and it has only reduced benefits, healthcare and otherwise.  Like evil magic I've seen coworkers disappear and service quality harmed.  This year I've had the highest out of pocket expenses in my lifetime for healthcare.  My employer states it emphasizes preventive care but I am unable to get a basic vaccination without having to drive several hours.

PEU greed and the for-profiteers who've commandeered the healthcare system are not looking out for my best interest.  They are looking out for theirs.

Saturday, November 2, 2019

Carlyle Co-Founder Rubenstein History Maker

The Guardian ran a piece on Carlyle Group co-founder David Rubenstein and his historic life as a modern day robber baron.  The story began with Rubenstein's revealing interview at The Economic Club of Washington, D.C. 

Rubenstein interviewed Secretary of State Mike Pompeo in late July.  Pompeo noted President Donald Trump's use of financial leverage to achieve diplomatic goals.  Somehow burnishing Trump's image and re-election chances became a U.S. diplomatic goal.

MR. RUBENSTEIN: OK. So, when you have decisions with the president, meetings with him, is he best with oral communications, written communications? What’s the process by which decisions are made? Is it through the NSC10 or informal?

SEC. POMPEO: Yeah. So, there’s a very robust NSC process. When I brief him myself, I always prefer to have a document. It’s the way I prefer to receive information. So, I almost always bring something – a one-page summary at the very least, that says here’s the outline of what it is that I think are the priorities now. We should think about how we should frame this particular problem. And then the president does like to engage in oral exchanges. And I’ve found them to be elucidating for myself. I often learn things as well. He’s very focused on where the money is, and how we use economic leverage to achieve our diplomatic ends.
The piece ignored Rubenstein's profiting from the American military-corporate-economic juggernaut.  That is part of The Carlyle Group's history.

David Rubenstein has a book to sell, in addition to his ever present cheer leading for private equity underwriters (PEU), also known as the greed and leverage boys.  His book highlights great men among our Founding Fathers.

Thomas Jefferson was the first businessman to use his slaves a collateral for debt.  The Smithsonian wrote:

It had long been accepted that slaves could be seized for debt, but Jefferson turned this around when he used slaves as collateral for a very large loan taken out in 1796 from a Dutch banking house in order to rebuild Monticello.  He pioneered the monetizing of slaves, just as he pioneered the industrialization and diversification of slavery.
The Carlyle Group used very large loans for Carlyle Capital Corporation.  CCC's 2007 year end results stated:

As of February 27, 2008, the Companys $21.7 billion investment portfolio is comprised exclusively of AAA-rated floating rate capped residential mortgage backed securities issued by Fannie Mae and Freddie Mac, which are considered to have the implied guarantee of the U.S. government and are expected to pay at par at maturity. 
One week later Carlyle Capital Corporation was in deep trouble:

Carlyle Capital Corporation touched off a wave of selling on Thursday, especially in mortgage real estate investment trusts, after the company failed to meet some of its margin calls and received a default notice.

Carlyle Capital is a European listed, publicly traded company that is an affiliate of the much larger Carlyle Group, a private equity firm.

Carlyle Capital apparently received margin calls from seven different parties on Wednesday, totaling $37 million dollars. The company said that these parties demanded additional collateral and that Carlyle Capital was unable to satisfy four of their demands.

Carlyle Capital fell 58% on Thursday, touching off a wave of selling across the world that saw some REITS fall as much of 20%. The company is listed in Amsterdam.

According to a report in Bloomberg, most of Carlyle's counterparties are Wall Street firms
Two weeks later Carlyle revealed CCC would declare bankruptcy.  BBC reported:

On Wednesday, CCC said that it had not been able to refinance its business. It said it had so far defaulted on about $16.6bn (£8.1bn) of its debt and the only assets it had left were US government AAA-rated residential mortgage-backed securities. 

CCC said it also expected to default on this after the portfolio's value was marked down again on Wednesday.
On March 16, 2008 Reuter's reported:

Carlyle Capital, an affiliate of U.S.-based buyout firm Carlyle Group CYL.UL, said it has received default notices from its last two remaining lenders and believes that its lenders have now taken possession of substantially all of its U.S. government agency AAA-rated residential mortgage-backed securities (RMBS).
Carlyle Capital had $600 million in equity and $21 billion in debt.  A lawsuit revealed how Carlyle set up CCC's financing:

The RMBS assets were purchased using one-month repurchase (repo) borrowing. The assets were subject to daily margin calls if prices changed.
Financing long term assets with short term money, what could go wrong?  That question was not asked of Mr. Rubenstein.  It has bearing today as the Federal Reserve Bank entered the repo lending market in a big way

Carlyle danced away from CCC's carcass as it neared an IPO for China Pacific Insurance.

Previously, Carlyle Group announced that it was just an investment consultant for Carlyle Capital, under the agreement between them, and it did not buy any securities of Carlyle Capital, although some persons in Carlyle Group totally hold an about 15% stake in Carlyle Capital.
One might expect better from a storied private equity firm.  BBC noted at the time:

"Almost within the blink of an eye, a business that had borrowed $21bn from the world's biggest banks to invest in high-quality mortgage-backed securities will be gone, liquidated, kaput," said BBC business editor Robert Peston. 

"Such is the whirlwind blowing through global financial markets."
Six months after CCC's implosion the Financial Crisis hit.  Did that whirlwind grow into a Category 5 hurricane in part due to The Carlyle Group's actions?  Not asked, thus not answered.

Another item not recorded for history is why the Carlyle Group withdrew completely from the Corpus Christi oil shipping terminal at Harbor Island.  Carlyle lauded their role as "exclusive developer" one short year ago.

Trump's ongoing greatness and Rubenstein's ever present greed are unique in history. Neither make for an honest exploration of events.

Update 11-4-19:  PEU Blackstone's chief strategist warned the "mother of all bubbles" could blow up.  One sign of instability cited is the failure of the repo market.  JessesCafeAmericain shared a quote worthy of PEU founders and their exalted status:

"His money came from human misery and death and despair, as always it does.  Yet, there is none to reproach him, neither God nor man, and all fawn upon him and he will be a senator and crowds will laud him and he will have the ear of the President and all will honor his riches and consider him worthier than other men because of it.
Mankind adores its betrayers, and murders its saviors."

Taylor Caldwell, Captains and Kings
Update 11-5-19:  CNBC interviewed Carlyle co-founder David Rubenstein.  The PEU greed and leverage boys hate paying taxes. 

Thursday, October 31, 2019

Retirees Aren't Clamoring for PEU Investments

St. Louis Business Journal reported:

Edward Jones CEO and Managing Partner Penny Pennington said her firm's clients are not clamoring for access to investments in private companies but said that could change over time.

Private equity investments, which are less liquid and more risky, historically have been the purview of very wealthy investors and outside the reach of most retail investors. "We're not seeing that demand yet in our marketplace," Pennington said. "Though what we know is what's attractive to ultra-high-net-worth individuals becomes more attractive, and manufacturers look at getting it more into retail investments. So I am hearing a little bit about that, but I think it will take a bit."

Pennington's comments came during an interview with Bloomberg about the economy and the current investing climate. 

As for the risk of private equity investments, Pennington said: "Private equity is illiquid. When you are talking about the need for liquidity, when you are talking about folks getting into a comfortable retirement and needing to produce income, private equity is not set up right now to do that.
Thus private equity investments will need to be dressed in a way that cons the retiree into thinking they have a liquid, predictable income producing asset.   Rest assured it will come with layers of fees.

Harken back to Carlyle Capital Corporation.  Forbes reported Carlyle's sales pitch to Michael Huffington, who sued The Carlyle Group for losing his $20 million investment:

the fund was "conservative,' 'low risk' and that the 'downside [was] very limited"
Huffington was concerned about the safety of private equity underwriters (PEU).

Huffington expressed reservations about the risky nature of private equity, but Rubenstein responded that he would "look for something appropriate for you."
Carlyle Capital Corporation was listed in Amstedam, giving it the appearance of a stable investment.  The mortgage backed security firm was levered 32 times.  Four days ago Carlyle Group co-founder David Rubenstein said on Sunday Morning:

"What we've learned over thousands of years is that history repeats itself," Carlyle Group co-founder David Rubenstein said. "And if you can find the solutions that people came up with or the mistakes they made in trying to deal with these problems, you're probably going to avoid some of the mistakes that people made in the past."
Beware whatever the PEU boys package for retirees needing safe, predictable income.   Someone may be telling you a story. 

Someone has to be the final mark for the greed and leverage boys holding trillions in dry powder.  Beware the spark that makes it go "Boom."

Monday, October 28, 2019

Rise Fund's Bill McGlashan PEU Fall

TPG Capital, a Forth Worth, Texas based private equity underwriter (PEU), targeted social and environmental impact in addition to massive profits in their Rise Fund.  TPG calls that "complete returns."

The Rise Fund, which launched in December 2016, was co-founded by Bill McGlashan, Founder and Managing Partner of TPG Growth and Co-Founder and CEO of The Rise Fund; U2 lead singer Bono, a well-known activist and a special partner with TPG Growth; and Jeff Skoll, a global entrepreneur, film producer, and impact investor. 

Education is a crucial part of The Rise Fund’s mission. Expanding access to quality education creates a foundation for long-term growth, progress, and prosperity,” said Bill McGlashan. “There is a vast need for improved and expanded educational resources around the world. At the same time, there are exciting opportunities to build innovative and impactful educational businesses and technologies.  
Rise refers to the fund as a "leading global education investor."  Institutional Investor reported:

Bill McGlashan, founder and managing partner at TPG Growth and co-founder of The Rise Fund, a social and environmental impact fund, was accused of allegedly paying bribes to facilitate his children's admission to colleges, federal prosecutors said.

Institutional Investor later added:

TPG was a few months into fundraising for Rise Fund II when co-founder McGlashan was accused of bribing a University of Southern California official to facilitate his son’s admission to the school as a recruited athlete.
CNBC reported Rise co-founder McGlashin was either fired for cause or quit:

“After reviewing the allegations of personal misconduct in the criminal complaint, we believe the behavior described to be inexcusable and antithetical to the values of our entire organization."

McGlashan is disputing the terms of his departure, saying he resigned.
TPG co-founder David Bonderman made a sexist remark at an Uber board meeting which caused his resignation from the Uber board.  I am not aware of any funds pulled from TPG as a result of Bonderman's comment to fellow board member Arianna Huffington.

The impact of McGlashin's actions has not hurt Rise Fund fundraising.  Rise Fund II is at $1.7 billion with a target of $2.5 billion.  Contrast this with Ken Fisher of Fisher Investments.  Pensions and Investments reported:

The toll exacted by asset owners for Kenneth L. Fisher's sexist comments made at a conference earlier this month is $3 billion and counting.
The same groups put money into Rise and Fisher investments.   How does one firm get a free pass while the other gets pummeled?  The big money boys will have to answer. 

It's like the Dubai Ports World brouhaha where the prospect of American ports falling into Middle Eastern hands caused a giant uproar.  Shortly after that The Carlyle Group sold fifty U.S. airport operations to Dubai Aerospace and there was not one peep in the media.  

It's a rising PEU world, even as one of their stars fell. 

Saturday, October 26, 2019

Business School Tale Has PEU Odor

A Duke University law professor questioned the purpose of private equity. 

"private equity emerged as a knight in shining armor, reuniting ownership and control in corporate America and turning bloated, inefficient companies into slimmed-down cash machines."
Her thesis is private equity underwriter's (PEU) original purpose was to reform corporate governance.  PEU ownership turned the board into an insider group laser focused on returning large amounts of cash to sponsor via deal fees, management fees, special dividends/distributions and finally flipping the company for a multiple of its original purchase price.  Along the way sponsor PEU placed as little up front cash in the project (equity), saddling the company with massive debt relative to its prior inefficient public ownership.

The professor cites how the corporate world has changed and stated private equity's current distinctive competency might be providing "cheap debt" to companies.  I am not sure that is true as riskier junk bonds pay more in interest than investment grade bonds.  Most private equity transactions are not investment grade so they pay higher interest rates.

Cheap debt is a function of The Federal Reserve Bank and top leaders Jay Powell and Randall Quarles are former PEU boys.  Both worked for Washington, D.C. based The Carlyle Group.

One frequent spinner of the "knight in shining armor" story is Carlyle Group co-founder David Rubenstein.  He sat on the Duke University board until from 2005-2017, serving the last four years as board chair and made significant contributions to a number of Duke programs.  Rubenstein has his own Duke University webpage.

Do knights in shining armor lead on a family owned company, only to foreclose via highly discounted debt?  The deal jettisoned the employee pension.  That's the Carlyle Brintons story.

Do rescuing knights get banned from the World Bank for 33 months for procurement violations?  That's Carlyle and ARINC.

Do knights go bankrupt from bad financial bets not revealed in SEC filings?  That's Carlyle and Semgroup.

There are many more black knight PEU stories for Carlyle.  Older examples include LifeCare, Manorcare, Vought Aircraft, and Synagro.  The newest is Carlyle's abandonment of the Corpus Christi Harbor Island oil terminal.

I don't believe the greed and leverage boys were ever knights in shining armor, not in the '80's and not today.  They are obsessed with image and utilize every lever to shape the world to their advantage.

Rather than White Knight private equity is more like a Great White Shark.  The PEU appetite for money is insatiable.  Watch out for financial sharks when they gather in groups at Davos in Desert, like their great white counterparts, currently off North Carolina's Outer Banks.