Thursday, February 11, 2016

Carlyle's AUM Drops by $5 Billion

From September to December 2015 The Carlyle Group experienced a $5 billion drop in assets under management.  AUM fell from $188 billion to $183 billion over the three month period.

The earnings call highlighted the beating Carlyle has taken in the hedge fund arena:

Hedge fund AUM declined to $8.3 billion as of the end of 2015, compared to $13.4 billion as of the end of 2014 and we expect AUM runoff of approximately $3.1 billion in 2016, which redeemed assets are sold and returned to investors.
People want out of Carlyle's hedge funds.  We'll see if they want in on CG stock. 

Wednesday, February 10, 2016

What Policy Makers Learned at Davos

1.  With negative rates
2.  People will need to rush to yield
3.  Which can only be met by the greed and leverage PEU boys
4.  Who soon will have investments for unaccredited investors.
5.  Those same PEU boys sponsor our elected officials
6.  And hire captured policy/regulatory high ups
7.  After their "public service."

Get the picture.  They screw us to enrich themselves. 

Tuesday, February 9, 2016

HCP Writes Down Equity for Carlyle Group's ManorCare

Six years ago Dealbook reported:

The Carlyle Group solidified its standing as one of the year’s busiest deal makers this week with an agreement late Monday to sell the real estate of its big nursing home operator, HCR ManorCare, to the real estate investment firm HCP for about $6.1 billion.

Under the terms of the deal, Carlyle will sell HCR ManorCare’s real estate to HCP for $3.5 billion in cash and HCP stock worth $847 million at Tuesday’s closing share price. Another $1.72 billion will come from the reinvestment of HCP’s existing debt investments in HCR.

HCR, which will lease back the 338 properties while still operating them, will wipe out nearly all of its debt. It will still be controlled by Carlyle, though HCP will gain the right to buy a 9.9 stake in the nursing home operator for $95 million.
HCP's stock imploded today, mostly due to its deal with Carlyle's ManorCare.  MotleyFool reported:

HCP warned that HCR ManorCare continued to face challenges, which it expects will continue into 2016. The REIT noted that "reduced growth outlook for the broader post-acute/SNF industry indicates challenges to the improvement in HCRMC's financial performance over the next few years."

Its recently filed annual report discloses that the company generated 23% of its revenue from HCR ManorCare in 2015.

The company took an $817 million impairment charge in the fourth quarter, reflecting its expectations for weaker performance. In addition to industry-related challenges, HCR ManorCare is currently under investigation by the Department of Justice, a quagmire that's costing the company $1 million per month in defense costs.

HCR ManorCare has been a problem for HCP in the past, with the REIT having once already cut the rent it charges to the company.
Caution when striking a deal with a PEU.  Like a viper they can turn on you.

As for Carlyle being a great operator one need only look at LifeCare Hospitals and ManorCare.  Carlyle destroyed LifeCare's equity to the point of bankruptcy and ManorCare might be defunct without the REIT deal which nearly eliminated HCR Manorcare's debt in 2010.

ManorCare could be at risk if Carlyle bled the company via dividend recaps.  That information won't be known until ManorCare goes public or bankrupt.  We'll see which comes first.

Recall this is the model proposed to save healthcare.  Surely it will put an end to us all.

Sunday, February 7, 2016

Rubenstein Missed Davos 2016: Why?

Carlyle Group co-founder David Rubenstein was not on the attendance list of the recent World Economic Forum meeting in Davos, Switzerland.  The global elite gather annually in the Alps to strategize on how to maintain their hegemonic power and grow their massive fortunes.   

Quartz reported Rubenstein as a no show, among a group of mostly former CEOs.:

David M. Rubenstein, the co-founder and co-CEO of publicly traded private equity firm The Carlyle Group, is another no-show. But Carlyle executive Volkert Doeksen is expected to attend.
Private equity has been front and center at the annual WEF meeting for decades.  For 2016 Blackstone's Stephen Schwarzman served on a panel focused on "Future Proofing Financial Markets."

Private equity underwriters love Davos for two reasons.  It's where deals get done and it can serve as a place for recruiting new investors.  Apparently Rubenstein didn't need the World Economic Forum to sell new investment opportunities.

Bloomberg reported in late December 2015:

KKR & Co. founder Henry Kravis, Blackstone Group LP Chairman Stephen Schwarzman and Carlyle Group co-founder David Rubenstein were among the guests when Kazakhstan President Nursultan Nazarbayev hosted a dinner in New York.

Apart from the dining at the Four Seasons Hotel, there was access to a possible $93 billion on the table as Nazarbayev, who presides over Central Asia’s biggest energy exporter, seeks to boost returns on the country’s wealth funds. The $64 billion National Fund has struggled to achieve an average of 2 percent annually for the past five years.
Washington Business Journal reported in early February 2016:

D.C.-based private equity giant The Carlyle Group (NASDAQ: CG) has raised $2.4 billion to purchase stakes in mid-sized companies.

The Carlyle Equity Opportunity Fund II will focus on equity investments ranging from $20 million to $200 million and serves as a follow-up to a previous fund, 

The new fund has already made investments in marine transportation company Seacor Holdings Inc. (NYSE: CKH), merchandising solutions firm Array Canada Inc. and in the McLean-based legal tech company LDiscovery LLC.
What makes Rubenstein's absence more puzzling was his being in London on January 18-19 for the London School of Economics Alternative Investment Conference focused on hedge funds and private equity.  Rubenstein and fellow PEU David Bonderman of TPG served as keynote speakers for the event.

Last year Mr. Rubenstein was effusive about investing in oil.  Carlyle's deal with Seacor came in November 2015, roughly two months before publicly announcing the new fund:

SEACOR Marine Holdings Inc. ("SMH"), entered into an agreement to issue $175 million in convertible notes to investment funds managed and controlled by The Carlyle Group ("Carlyle"). It is expected that the notes will be issued on December 1, 2015.  

The transaction contemplates the eventual separation of SMH from SEACOR Holdings' other business lines, potentially via a spin-off of SMH or via a spin-off of SEACOR Holdings' other business lines.
Gulf News reported on private equity's moves in the oil shipping space:

Private equity and distressed debt specialist groups — including Blackstone, Carlyle, Centerbridge Partners, KKR, Oaktree Capital Management and WL Ross — have rushed to fill the void, by offering rescue finance, buying up debt at a discount and turning it into equity, or buying new and secondhand vessels. So far, their results have been mixed, hindsight shows that some groups ventured into the sector too early.
Shipping U.S. oil to Europe is one reason Rubenstein might've wanted to attend Davos 2016:  On January 20th Seeking Alpha reported:

The first export of U.S. crude oil in four decades arrived in Europe early today, reaching the French port of Marseille before sunrise after leaving from Texas nearly three weeks ago, Financial Times reports. 

Oil trader Vitol is expected to unload the shipment - a mix of ultralight oil from the Texas Eagle Ford shale formation produced by ConocoPhillips (NYSE:COP) - which will then travel by pipeline to one of two refineries the company operates in Europe under a joint venture with the Carlyle Group (NASDAQ:CG).
January 20th was the opening day for the World Economic Forum.

Was Mr. Rubenstein at Vitol's Swiss Cressier refinery celebrating the first import of U.S oil?  If so he wasn't far away from Davos.

Cressier is one of only two refineries in Switzerland and accounts for approximately 25 percent, by volume, of all refined products sold nationally.
Some may recall Texas landowners sued Carlyle over failure to meet commitments in the Barnett Shale.

Another topic near and dear to Mr. Rubenstein is high on the WEF agenda, Arctic development.   In December 2015 the forum released a report titled:

"Arctic Investment Protocol:  Guidelines for Responsible Investment in the Arctic"
Mrs. Rubenstein, also known as Alice Rogoff, and her husband have spent many years proposing Arctic development.  Both wish to profit from it.

With such compelling topics what could have kept Carlyle consummate salesman away?  Might it be investors fleeing Carlyle's hedge funds, Claren Road and Vermillion Asset Management?   It's not a good time to ask for new money when existing investors can't get their money back.

Sunday, January 31, 2016

Triumph Overpaid Carlyle Group for Vought Aircraft reported:

Triumph reported an $88 million fourth-quarter loss after writing off $229 million of the $1.4 billion it paid Carlyle Group for Boeing supplier Vought Aircraft Industries in 2010.
Triumph wrote off 16.4% of Vought's purchase price.  Besides paying too much for Vought Triumph inherited the company's promise to create 3,000 new jobs and employ 6,000 total in Texas through 2019. 
Governor Rick Perry, intent on pushing public money to corporate friends and supporters, gave Vought $35 million without the company formally applying for funds.  Attorney General Greg Abbott, now Texas Governor, prevented the public from knowing the most basic information about his boss' corporate slush fund.  Yes, neither party is in jail for being an abysmal shepherd of public funds.

Carlyle owned Vought took the $35 million in 2004 and by 2005 knew it wouldn't come close to reaching their Texas job promise.  South Carolina won Vought's Boeing Dreamliner production.  Vought's CEO under Carlyle told Dallas Business Journal in 2007 that the job promise was worthless, yet no one pursued repayment.

By the time Carlyle sold Vought in 2010 it paid back a mere $900,000 to Texas taxpayers.  Triumph paid back $9.2 million since paying too much for Vought.
PEUReport began covering Vought's employment promises and abject failures in 2008

There are numerous posts on this blog that detail aspects of Vought's operations and hollow employment promises.  Yet, they still hold $25 million in public money a mere four years from the end of the agreement.

Saturday, January 30, 2016

Toshiba Could Compound Cultural Dysfunction with PEU Sale

Toshiba Corporation, lured by the siren song of executive rewards, falsified profits from 2009-2014.  WSJ reported;

Three consecutive Toshiba chief executives fueled the accounting irregularities by setting unrealistic profit targets and demanding that subordinates meet them, an independent panel hired by the company said Monday.
Now the company wants to rectify longstanding accounting fraud by partnering with a private equity underwriter (PEU) on its medical imaging business.  Apparently Toshiba executives haven't learned how PEUs pressure affiliates to perform financially such that executives commit bribes or fudge profit numbers.

Toshiba knows its internal failings:  Japan Times reported in July 2015.

It emerged this year that from fiscal 2009 to 2014 the firm manipulated its accounting to produce a ¥152 billion net profit.

Toshiba Corp. will forgo bonuses to all 33 executive officers for the current business year as managers take responsibility for an accounting scandal, company officials said Thursday.

The move is aimed at restoring trust in the company as soon as possible, the officials said.

The performance-linked payment (is) usually paid in July
The falsified profit numbers produced performance payments from July 2010 to July 2014.  Japan once widely embraced the leadership teachings of Dr. W. Edwards Deming, who encouraged management to drive out practices that encouraged the falsification of numbers.  Fear is one cause and greed is another.

He also spoke about constancy of purpose, which is greatly harmed by the buying and selling of companies and PEU profit maximization machinations.  Having made one great sin by driving in fear and greed, Toshiba looks to compound it by partnering with a PEU on Toshiba Medical Systems.

Toshiba need only look at The Carlyle Group's decimation of Johnson & Johnson's Ortho-Clinical Diagnostics Inc.

Ortho-Clinical missed a deadline last year for reporting its third-quarter 2014 earnings and disclosed them late, citing accounting complexities
Carlyle loaded Ortho up with debt.  Bloomberg reported:

Carlyle acquired the unit, which provides medical tests and equipment for disease screening, from J&J with more than 80 percent of the deal financed using credit.
Profits for the third quarter declined in each of the last two years under Carlyle's ownership.

The company’s $1.3 billion of 6.625 percent bonds sunk to 68.1 cents
Leveraged buyouts can kill a company's culture.  I'd love to hear from Ortho-Clinical employees on their culture with The Carlyle Group as their "sponsor."

Toshiba's case of cultural sickness will go from bad to worse with a majority PEU owner.  They can't see it.

Friday, January 22, 2016

Davos Men Push Back Against Angry Voters with Job Threats

Fortune reported:

One of the main themes of this year’s World Economic Forum is how technology could shrink the workforce, cutting as many as 5 million jobs worldwide in the next few years.

Gary Cohn, the chief operating officer of Goldman Sachs, says that many of the companies he works with are looking to “optimize” their workforce. He says that will result in the redistribution of more U.S. employees to lower cost areas, like Bangladesh, India, or Warsaw.
Clearly American jobs will be lost to optimize executive compensation, pure and simple.

Update 1-24-16:  On one estimate, 47% of US jobs are at risk from automation.