Thursday, April 24, 2014

Carlyle Buys into Turtle Bay Gardens

The Carlyle Group purchased a signature New York townhome for $13.5 million.  The townhome listing stated:

Few houses possess the grace, sense of grandeur, and at the same time comfortable intimacy that this house presents. A cornerstone of Turtle Bay Gardens, a unique enclave of townhouses on an exclusive central garden promenade, this outstanding home features a small hall of mirrors leading to a double height grand ballroom, with 22 ft. ceilings. Above is an expansive double height sky lit artist's studio. In addition to the private garden with its own central fountain, the property gives directly on to the historic promenade, the famed willow tree, and 'Medici fountain' modeled after the original in Rome. Stepping into this 38 foot mansion is a rarefied experience. With four to five bedrooms, seven fireplaces, garage, elevator. A magnificent property, and unique opportunity to participate in New York City's glamorous history, and future.

Turtle Bay Gardens was created by Charlotte Martin in 1920, when she bought a collection of 1860's townhouses, transformed them, and sold them to a select group of friends. The twenty houses and private gardens face onto an elegant communal garden, where over the decades some of the most creative and celebrated New Yorkers have called home.

Long renowned for its fiercely loyal inhabitants, Turtle Bay is the quintessential New York neighborhood. Situated along the east river, and central to all parts of New York, Turtle Bay has a sense of history, with room for bold visionaries. Encompassing the United Nations, Beekman Place, and the historic enclave of Turtle Bay Gardens, it is quietly local, yet at the crossroads of the world.

With Wall Street and the United Nation nearby, it's now the PEU crosshairs.

Wednesday, April 23, 2014

PEU Recaps: From Liquidity to Leveraged

Obtuse PEU's continued innovating names they foist on the public to hide loading up affiliates with debt so they can pay themselves huge dividends.  Two years ago the PEU boys referred to such events as "liquidity recaps."  They're now "leveraged recaps."  Much clearer?  Right!

They are dividend bleedings, a sponsor driven monetizing move.  Bain and KKR bled giant for-profit hospital chain HCA for $4.25 billion before taking the company public.  HCA, in another charitable PEU move, may help The Carlyle Group and TPG monetize Australian hospital chain Healthscope.  The price is said to be double for Carlyle & TPG, but that doesn't count PEU deal fees, annual management fees or any "leveraged recaps." 

Private equity has their lingo and I have mine, like private equity underwriter (PEU).  The PEU trade group I call PECKER, Private Equity Capital Knowledge Executed Responsibly.  

The Rich Have Installed the Pathological

Washington's Blog ran a piece on how an empire implodes from within.  Two points resonated with my observations on the deteriorating state of leadership in organizations, both business and political.  They are:

3.  Self-serving institutions select sociopathic leaders whose skills are not competency or leadership but conning others into believing the institution is functioning optimally when in reality it is faltering/failing.
I've been surprised by my growing experience with these types in the last decade.  I'll add that these leaders optimize their personal power and income to the detriment of the organization, not to its benefit.  They also pressure others into creating and maintaining their fictions.  Anyone exposing elements of the truth are in for a world of hurt.

12. The feedback from those tasked with doing the real work of the Empire is ignored as Elites and vested interests dominate decision-making.   The point is that decisions made with no feedback from the real-world of the bottom 95%, that is, decisions made solely in response to the demands of cronies, vested interests and various elites, are intrinsically unsound and doomed to fail catastrophically.

PEUReport ran pieces on policy making billionaires, the Bush/Obama White House frequent hosting of and fawning over PEU's.  The average person's voice has been marginalized and ignored for at least a decade.  Neither the Red or Blue Team care to reverse this entrenched pattern.  It's a PEU world.  Greed, power and hubris are clearly on display.   

Monday, April 21, 2014

PEU Grady-Gov. Christie Meet Pres. Obama-PEU DeParle

New Jersey Governor Chris Christie's longtime mentor Bob Grady is a private equity underwriter (PEU).  He was with The Carlyle Group before leaving to join Cheyenne Capital.  In 2010 Christie appointed Bob to the committee that oversees state pension investments, where he has since risen to Chairman.

PandoDaily takes on Grady's potential conflicts of interest in steering $300 million in dedicated investments to The Carlyle Group and how this might personally benefit Grady.  The article stated:

“The contracts that pension funds sign with private equity firms and hedge funds often say certain investors who are strategic – like, former firm partners – can be designated ‘strategic investors’ and given preference.”
This brought back PEUReport's find that White House Health Reformer Nancy Ann DeParle received a distribution from the sale of MQ Interholdings (owned by CCMP Capital Partners).  This occurred in 2011 while DeParle worked in the White House and after she "divested all conflicting assets." 

PEU's became ubiquitous the last decade, with the media only paying attention when Mitt Romney ran for President.  That coverage barely broke the surface of private equity's harm to so many. 

After her public service Nancy Ann DeParle returned to her healthcare PEU roots.  If America's healthcare reformer came from private equity and returned to private equity, who do you think stands to gain from health reform?  I'd bet private equity.

Clinton's PEU Staff Pushed Dropping Glass Steagall

Three close advisors to President Bill Clinton pushed repeal of Glass Steagall in the 1990's.  They are:

Bo Cutter
Gene Sperling
John Podesta

This trio is in addition to Larry Summers and Robert Rubin.  Former Co-Chairman of Goldman Sachs Robert Rubin went on to work for CitiGroup before joining PEU Centerview Partners as Counselor.

Bo Cutter left the Clinton team to work for PEU Warburg Pincus from 1996 to 2009.   Gene Sperling made good money working for the PEU boys in 2008:

Goldman Sachs paid Sperling $887,727 for his advice in 2008, according to Bloomberg News' analysis of financial disclosure forms. 

It was a lucrative year for Sperling. During that time he also earned $250,000 for giving briefings to two hedge funds, Brevan Howard Asset Management and Sterling Stamos Capital Management. He also earned $480,051 as director of the Philadelphia Stock Exchange. During October 2007, he was paid to speak at an event sponsored by Citigroup.
John Podesta founded the Center for American Progress.  His lobbying brother Tony and sister in law Heather made out like bandits from the Podesta insider connections.  Tony's firm earned $27.2 million in lobbying fees in 2013, while Heather grossed $7.6 million.

Clinton White House political affairs director Rahm Emanuel made his PEU haul after leaving public service.  More recent Blue White House members to join the PEU class include Peter Orszag - CitiGroup and Tim Geithner - Warburg Pincus.

They're all lining up for Hillary, the next Blue PEU pot of gold.  To think Hillary could be running against Jeb Bush of Lehman PEU fame.  It's the state of our PEU world, where Red and Blue love PEU.

Sunday, April 20, 2014

Image Obessed Leaders Distort: The Emanuel Effect

Rahm Emanuel cited three priorities when he was sworn in as Chicago Mayor.

In shaping that future, our children, and their schools, must come first.  Second, we must make our streets safer. Third, we must put the city of Chicago’s financial house in order, because we cannot do any of these things if we squander the resources they require. 

Ironically, Chicago is the place where Rahm's personal financial house expanded greatly in terms of resources.  As an investment banker Emanuel made $18.5 million in two and a half years.  His political influence grew as a member of Congress and President Obama's Chief of Staff.

In his Mayoral swear in speech Emanuel said:

As some have noted, including my wife, I am not a patient man. 

Underlings know what to bring and what not to bring such men.  Their demands must be met, ethically or unethically.

Which brings us back to Chicago crime rates.

Reporters detailed a number of incidents in which crimes were reclassified in order to fit the narrative that crime overall was falling in the city.  One reporter said. “You would hear Superintendent McCarthy and Mayor Emanuel talk about these massive crime drops but people in the neighborhoods didn’t see this and the cops in those areas didn’t see it.”

To please those in command calculations are altered.   Questions about these changes become lost in a bureaucratic maze.  Everything in the present moment must fit the narrative that Mayor Rahm Emanuel's rule is supremely successful.  It's the platform for Rahm to advance to the next stage.  The charge for underlings is to optimize Mayor Emanuel's image.  Job preservation requires this be done at all costs.

Fear is back in force.  It's a primary motivator for politicians and PEU's, second only to greed. Managers leveraging greed and fear induce massive distortions over time.  Most end badly.  Even so, it's never their fault.

Update 4-23-14:  The disease has infected the Census Bureau where data is "changed at the whim of supervisors who are more concerned about making quotas."  Here's the irony:  Quality guru W. Edwards Deming honed his management theory, not only in post-war Japan, but at the U.S. Census Bureau.  I wish he could visit us from the grave.  As he said many times, "Fear causes wrong figures."  With wrong figures who can manage?

Saturday, April 19, 2014

Carlyle Group Double: A Look Back at Horizon Lines

Private equity underwriters boast of their successes.  CNBC recently hosted Carlyle Group co-founder David Rubenstein with two of Carlyle's operating executives.  They bragged of doubling employment, while never offering the affiliates name (AxleTech).  In order to balance coverage I offer the PEU story of Horizon Lines.

WSJ reported in February 2011:

Horizon Lines Inc. agreed to plead guilty to a felony charge of conspiring to fix rates for marine freight transportation over a six-year period and will pay a $45 million fine, according to the Department of Justice. 

The container-shipping and intermodal-transportation company was accused of fixing rates between Puerto Rico and the U.S. from as early as May 2002 until at least April 2008.

Under the terms of the deal, Horizon Line said the Justice Department has agreed not to bring criminal charges against any current director or officer, although the pact doesn't apply to the company's current chief executive or chief operating officer.

Five former company executives received prison sentences after pleading guilty to bid rigging, price fixing and other charges in October 2008.  
Why would the Justice Department exclude board members or officers?

1,  Ex-Commerce and Transportation Secretary Norman Mineta served on the Horizon Board from 2006 to 2011. 
2.  The Carlyle Group owned Horizon Lines from February 2003 to May 2004.
3.  John Snow's CSX owned the company during the initiation of price fixing in May 2002.  John Snow became President George W. Bush's Treasury Secretary in February 2003.

The fine fell to $15 million according to a Horizon SEC filing.

On April 28, 2011, the U.S. District Court for the District of Puerto Rico amended the fine imposed on us by reducing the amount from $45.0 million to $15.0 million. 
Horizon settled with competitors damaged by their felonious acts:

Horizon Lines agreed to settle with shippers at a total cost to the company of $13.75 million in exchange for full release of all antitrust claims.  Under the terms of the settlement agreement, Horizon Lines will make a payment of $5.75 million within 10 business days of the November 23, 2011, effective date, a payment of $4.0 million by June 30, 2012, and a final payment of $4.0 million by December 24, 2012

"We are very pleased with this settlement, which brings to closure our last known major financial exposure relating to antitrust claims involving the Puerto Rico tradelane," said Michael T. Avara, Executive Vice President and Chief Financial Officer. "It also eliminates the potential for protracted and costly litigation."  
Last month Horizon announced a second settlement with the government:

Charlotte-based shipping company Horizon Lines said Friday it has agreed to pay a $1.5 million settlement in a price-fixing case brought by the federal government, the company’s most recent outlay in an investigation stretching back to 2008.

The settlement announced Friday resolves complaints from the U.S. departments of agriculture, defense and the postal service. As a result of collusion between Horizon and Sea Star Line, a Jacksonville, Fla.-based shipping company, the government was overcharged for shipping mail, food and other products, according to the complaint.

Read more here:
I wrote about Carlyle's massive profit from Horizon six years ago. The Honolulu Star chronicled Carlyle's financial windfall in May 2004.

The Carlyle Group said yesterday that it will sell Horizon Lines, one of the market leaders in Hawaii-mainland shipping, to private-equity firm Castle Harlan for $650 million -- more than double what Carlyle paid for Horizon just last year.

The Carlyle Group bought Horizon from Virginia-based rail-transport company CSX Corp. in February 2003 for $300 million when it was still known as CSX Lines and changed the name.  

Carlyle Group spokesman Chris Ullman said the equity firm, which has $18 billion under management, decided to sell Horizon Lines so soon due to Carlyle's quick success in turning it into a stand-alone shipping company. Just one and a half years after Carlyle bought it, Horizon Lines is already about to surpass a five-year goal for earnings, Ullman said, though he provided no figures.

"And that's been during a weak economic period. Imagine how well the company can do during better times. That's been a key selling point," Ullman said.

He said Horizon's hefty mark-up reflected that success and improvements in U.S. capital markets which have made it easier for Castle Harlan to leverage a deal.

That was in the early days of PEU frothiness and CSX/Horizon's price fixing.  Castle Harlan did a debt for dividend on Horizon, taking $51 million out in shareholder distributions. 

Castle Harlan took Horizon public a year later and the sad story is below.

Read more here:
What is in PEU management that causes executives to lie, cheat or steal to outperform on targets?  Carlyle examples include Synagro (bribing), ARINC (procurement violations), Horizon (price fixing), SemGroup (energy betting) and itself (several settlements for bribing). 

How does their influence induce public servants to stay silent about Carlyle companies and their role in deadly or nefarious events?  The Bush White House did it for LifeCare Hospitals (Hurricane Katrina deaths) & Landmark Aviation (rendition carrier).

Texas Governor Rick Perry repeatedly lied about Vought Aircraft's actual job numbers after giving the Carlyle affiliate $35 million in 2004 (promise 3,000, result 35).

Like the directors and officers of Horizon PEU players and their sponsored politicians skate.