Sunday, October 26, 2014

Behemoth Carlyle Loses Taste for Public Water

While our Goliath federal government caters to private equity underwriters (PEU's) at numerous turns, two small municipalities have taken on The Carlyle Group's Park Water.  Missoula, Montana and Apple Valley, California loaded an eminent domain stone in their sling. 

Missoula's stone has considerable velocity and is ready to launch at Carlyle's three eyed monster, which has an eye for each Carlyle Group co-founder.  The Missoulian reported:
The city of Missoula can afford to bond for as much as $102.63 million to buy Mountain Water Co. based on current rates, according to Barclays Capital. 
Note that $103 million is what Carlyle paid for Park Water and its three divisions in 2011.  Barclays suggests that Carlyle get its money back from the sale of one division, Mountain Water.  Rest assured, Carlyle had four years to pull management fees and dividends from Park and its three subsidiaries.  From numbers released in the Mountain Water case this will amount to $15 million, $10 million in management fees and $5 million in dividends by year end.

One of the other two divisions of Park Water appears ready to give Carlyle another headache. Victorville, California's Daily Press wrote:

A study commissioned to explore various financing options for the town’s purchase of Apple Valley Ranchos Water Company was released last week. 

The Apple Valley Town Council authorized the release of its “Financial Feasibility Analysis for the Acquisition of the Apple Valley Ranchos Water System. 

The town is pursuing the purchase of AVR in order to gain local control over the town’s water resource and stabilize the ever-rising rates the town has experienced over the last decade, according to a news release.
Here's a hint as to how complex Park Water's corporate structure actually is.  This comes from the Apple Valley press release:

The Carlyle Group, an investment firm based in Washington, D.C. and the current owner of AVR, has said Park Water Company, of which AVR is a part, is on the market and for sale. An announcement of a potential sale came in late September from Algonquin Power & Utilities Corp., a Canadian company, which said its regulated utility business, Liberty Utilities, agreed to acquire Western Water Holdings LLC — the holding company of Park Water under the Carlyle Group. Park Water Company also includes the Mountain Water Company in Missoula, Montana and Park Water Company in southeast Los Angeles. 
Two of Park Water's three divisions are challenging The Carlyle Group.

Carlyle is used to being catered to by local, state and the federal government.  Each is to bring government business for affiliates, preferred taxation for PEU profits or millions in economic development incentives.  How dare they try to buy Carlyle assets for less than a three, four or five bagger!

The Carlyle Group found this so distasteful it will exit public infrastructure.  WaPo reported:

Seemingly tired of the back and forth, Carlyle is exiting business of bridges, water and highway stops after eight years. It’s going into energy infrastructure instead.
I hope at a stone lands in at least one the Carlyle monster's three eyes before it packs up its weapons and moves to territory where it's easier to crush local opposition.  Energy fits the PEU bill.

Saturday, October 25, 2014

Conan's Loss & Albright's Argentine Burn

ABC News reported on the Twitter interchange between Conan O"Brien and former Secretary of State Madeline Albright.

Madeleine Albright proved to be a good sport when Conan O'Brien cracked a joke on Twitter that name-checked the former U.S. secretary of state. 

On Thursday afternoon, the TBS late-night host quipped, "I picked out my Halloween costume. I’m going as 'Slutty Madeleine Albright."

Albright, 77, rose up to the challenge and tweeted a joke of her own, at O'Brien's expense, saying: "I'm considering going as hunky Conan O'Brien - but that might be too far fetched." 

O'Brien got a kick out of Albright's response. He responded, "YES - My first twitter war with a former Secretary of State! You're next, George P. Shultz!"

Albright then made it clear that she's not one to be messed with: "Never get into a word war with a diplomat," she warned. "We talk even more than comedians."
Another reason not to war with Madeline is her propensity for threatening others with a five point plan.  Albright shared a hedge fund's plan for destabilizing Argentina in her role as lobbyist for the firm.  I'm not sure which Madeline Albright is scarier, Conan's Halloween outfit or the international arm twister on behalf of the greed and leverage boys. 

Madeline is all about power.  Disrespect her and a price will be paid. I hope it's not another 500,000 Iraqi children.

Carlyle, JP Morgan, China & Corruption

WSJ reported:

After years of expansion (in China), some are scaling back. Carlyle Group , the alternative asset management company, is laying off about 10 people working on its China growth fund, according to people familiar with the matter. It closed the growth fund’s Chengdu office last year and is going to trim the growth-fund team in its Shanghai office and consolidate it with the Beijing team.  A spokesman at Carlyle declined to comment.

Almost half of the American firms surveyed believe foreign companies have been singled out in a string of pricing or anticorruption campaigns that have hit pharmaceutical, tech and auto companies recently, according to the American chamber. 
The Chinese told a different anti-corruption story.  Xinghau reported:

Since the 18th National Congress of the CPC in late 2012, the CPC Central Committee has been strictly governing the party, and improving the party's style of work, building a clean government and combating corruption, he said.
"All these efforts have gained the support of the general public," Wang said.
"This is just the beginning," he said, adding that the party's anti-graft campaign requires consistency, intensified supervision, discipline and accountability.
A clean government and a healthy and fair market offers the best soft environment for investment, he said.
Wang called for the overseas advisors to integrate international resources to give guidance for Tsinghua University's School of Economics and Management, and contribute to the development of China's education cause.
Advisors, including David Rubenstein, chairman of the Advisory Board and co-founder and co-CEO of the Carlyle Group, said they would continue to make positive efforts for China's economic and educational development.

Mass layoffs are prohibited in China, unless the firm has lost money for three straight years or been unable to pay employees for eight months.  I'll venture Carlyle's elimination of ten jobs isn't considered a mass layoff. 

One has to love that Carlyle is helping China with anti-corruption, which it's tainted ethical history.  Carlyle's gaffes include Synagro (bribes), Semgroup (bad energy bets), LifeCare (blaming doctors and FEMA for 25 patient deaths post Hurricane Katrina), Connecticut and New York pension fund (pay to play settlements in the tens of millions of dollars), Brintons (dumping pension onto public) and ARINC (banned from World Bank for bribery).

Add that J.P. Morgan CEO Jamie Dimon wants a safe harbor for influence purchasing and things get more interesting.  

I can envision Carlyle, J.P. Morgan and China holding hands in anti-corruption.  Can they ignore the facilitating payment or the employed ex-government official or well connected offspring.  They're staring everyone in the face. 

Monday, October 20, 2014

Carlyle's Global Jet Capital

AIN Online reported:

Global Jet Capital (GJC), a new source of leasing and lending options for business jet transactions, starts operations this week. The company has been launched with an initial $2 billion fund with the backing of three investment firms: GSO Capital Partners, The Carlyle Group and AE Industrial Partners.

The new venture’s backers have been evaluating the market for around the past 36 months. “We see an opportunity in the market because the traditional sources of financing, such as the banks, took a step back and others have placed significant hurdles in the lending process so that the provision of lease financing or debt financing has proved to be challenging,” he (Shawn Vick) said.

[In recent years] many businesses and individuals who have a requirement for large cabin and long-range aircraft have had to use their own capital to buy these, and then find financing [after the purchase],” explained Vick. He believes that GJC has a “significant opportunity” to help clients finance their aircraft in a more flexible way and free up capital for their own businesses.
How many Carlyle sponsored jets will be at the Republican and Democratic National Conventions in 2016?  It's our PEU world, where politicians Red and Blue love PEU.

Sunday, October 19, 2014

Carlyle's Investors Pay for Collusion Settlement

The epic shamelessness of private equity underwriters (PEU's) can be seen in The Carlyle Group's passing on the cost to investors for settling its role in illegal collusion with other PEU's on club deals.

Carlyle agreed to pay $115 million in the settlement. But the firm didn’t shoulder those costs. Nor did Carlyle executives or shareholders.

Instead, investors in Carlyle Partners IV, a $7.8 billion buyout fund started in 2004, will bear the settlement costs that are not covered by insurance. Those investors include retired state and city employees in California, Illinois, Louisiana, Ohio, Texas and 10 other states. Five New York City and state pensions are among them.

I've written about private equity for seven years and found numerous other fees and costs PEU's charged affiliates and investors.  Investors didn't collude.  Carlyle's management did.  NYT reported under Retirement (not DealBook):

Also blacked out in the Carlyle V agreement is a section on who will pay legal costs associated with fund operations. First on the hook are companies bought by the fund and held in its portfolio, the unredacted agreement says. That essentially makes investors pay, because money taken from portfolio companies is ultimately extracted from the funds’ investors.

But if for some reason those portfolio companies cannot pay, the Carlyle V document says, investors will be asked to cover the remaining expenses.
I wish the following were true:

“Fees are not trade secrets,” he said. “It’s entirely reasonable for us to know what we’re paying.”

Not in today's PEU world where politicians Red and Blue love PEU.

Saturday, October 18, 2014

Wake Up Vietnam!

Toi Tre News, a Vietnamese news source, reported:

The Ministry of Finance has proposed that the government increase the proportion of investment by foreign investors in the Vietnamese stock exchange, Deputy Minister of Finance Truong Chi Trung said at his meeting with David Marchick, the managing director of the U.S.’s Carlyle Group on Friday.
Will Vietnam openly welcome private equity underwriters (PEU's). like Carlyle? 

French colonization of Vietnam had the goal of economic profitThe Vietnamese either collaborated with the French or remained poorly paid laborers. Collaborators joined the lower levels of the French bureaucracy, made a decent wage, and benefited from the partnership.
The PEU-ization of Vietnam has a similar aim.

Friday, October 17, 2014

Carlyle to Siphon RAC Debt for Dividend

Bloomberg reported:

RAC Ltd.’s planned 1.2 billion-pound ($2 billion) loan is the biggest deal to be offered in the U.K. currency with limited lender protections, according to data compiled by Bloomberg

The roadside assistance company is seeking to raise the money through covenant-light loans, which don’t curb the ratio of debt the borrower can have compared with earnings and cash on its balance sheet and lack testing requirements on other performance metrics

RAC's PEU owner Carlyle Group plans to take a chunk of the $2 billion in dividends.
(T)he new debt will refinance existing facilities and pay a dividend to the private equity firm. 

Ka-ching!    RAC offers automotive breakdown protection.  Their paying customers need protection but not the company's debt holders.

Carlyle announced the sale of 50% of RAC a month ago.  It will now siphon off a significant portion of RAC's new $2 billion in debt.  Add management and deal fees and Carlyle is likely way beyond free shares. Let the PEU Times roll!