Saturday, July 4, 2015

Rubenstein: NY Billionaire Bubble vs. Greek Pensioner Debacle reported:

Rubenstein said The Carlyle Group is a large investor in Europe but the firm has not invested in Greece in recent years and has no plans to do so now. 
Carlyle's investor class includes public pension funds.  Elderly Greeks have been hit hard by this week's bank closures (BBC).

Reports said many pensioners waited outside branches from before dawn, only to be told withdrawals were being done alphabetically. Many were then asked to return on the following days.

Konstantinos Nikolopoulos, 70, was told by his bank that his pension was unavailable. "They told me they don't know when they will have the money and asked me to come again tomorrow just in case," he said.  "This situation is out of control."
Rubenstein sees a potential bubble in New York real estate:

"I suspect apartments built for billionaires in New York City might be a bit of a bubble. I'm not sure there's enough billionaires to fill all of them."
Billionaires are a growing class in the U.S. and globally.  Contrast their increased wealth with elderly Greeks:

Monthly pensions have gone down to an average of €833 ($924; £594) from an average of €1,350 in 2009
That's a 35% decline in monthly income over the last six years.  For some it could get worse.

Creditors want Greece to quickly phase out a top-up payment it gives to close to 200,000 of the country's poorest pensioners
The global race to the bottom on benefits includes pensions.  While some elderly have family members to support them others are not so lucky.

Zina Ravi, 79, relies entirely on her pension and says she is still in debt every month.  She is one of the high numbers of Greeks claiming a pension - and is having to help a middle-aged son who is now one of many unemployed Greeks.
It's not the right time for The Carlyle Group to invest in Greece.  There's no government to protect Carlyle's PEU investments or provide Carlyle risk reduced ways to make 30% annual returns. Rubenstein believes Greece could change. 

The financial betting class voted thumbs down on Greece's government debt.

Current bets have the house wanting big premiums to insure Greek debt.  Watch the vote from Sunday's referendum.  Will Greeks celebrate July 5th as a new Independence Day? 

Friday, July 3, 2015

PEU Carlyle Group Likes Mega Yacht Space

The Carlyle Group closed on Lauderdale Marine Center in time for July 4th fireworks.  South Florida Business Journal reported:

The Carlyle Group has acquired the largest yacht repair facility in the nation, the Washington D.C.-based company announced Wednesday.

Lauderdale Marine Center is the largest yacht repair facility in the U.S. in terms of the number of large vessels it can haul and service. It can accommodate boats up to 200 feet with 19 covered sheds and 156 wet slips. It has three marine travel lifts with haul-out capacity up to 330 tons and features 7,000 linear feet of dockage.
Carlyle affiliate BankUnited loaned Lauderdale Marine Center $60 million in 2013.  Carlyle exited BankUnited in March 2014, making billions thanks to Sheila Bair's FDIC

Carlyle's estimated purchase price for LMC is $140 million.  The Real Deal reported:

"Favorable demand trends in the mega-yacht industry and the high barriers to entry for new supply in Southeast Florida attracted us to the investment.”
Spoken like a true PEU.  I can heard Carlyle's David Rubenstein's sales pitch to his fellow billionaires.

 "You're coming to Basel in December.  Bring the (name of the yacht).  We'll take care of everything your baby needs.  Guaranteed." 
This is the crew who earlier this year gave income inequality lip service at Davos.  Trends are favorable for the mega yacht space in our PEU world, where politicians Red and Blue love PEU. 

Sunday, June 28, 2015

Greeks Find Restricted Access to Their Money

Bloomberg reported:

Greece ordered its banks shut Monday to avert a financial collapse after the European Central Bank froze emergency loans to the nation’s lenders.
For the privilege of holding your money banks pay no interest to a pittance.  They control when and how you access it. Thus people look to other vehicles for returns. 

BlackRock Inc. is seeking government clearance to set up an internal program in which mutual funds that get hit with client redemptions could temporarily borrow money from sister funds that are flush with cash.
Recall who gets flinched when the big boys begin to fall.  At Jon Corzine's MF Global it was customers.

MF Global Holdings Ltd. was ordered to pay $1.2 billion in restitution and a $100 million fine over claims that a brokerage unit misused customer funds.
Watch out when the big money boys no longer trust one another to make good on their debts.  Everybody rushes to cash.

Update 6-29-15:  Greek banks are now closed for a week  Puerto Rico said its debts are unpayable.  Ukraine asked for a 40% debt write down

Consul Energy's PEU Moves: Screwing Retirees

Consol Energy will raise roughly $150 million in the spinoff of CNX Coal Resources.  The spinoff will occur after the company announced it's eliminating the retiree health benefit.  TribLive reported:

Consol Energy Inc. said Thursday it will stop paying health benefits for about 4,400 retirees and spouses at the end of this year.
Consol's spinoff is worthy of the best private equity underwriter (PEU) in that while the general partner gains, employees lose.  The SEC filing indicated:

Other Post Employment Benefit liability not assumed = $6.7 million   
It wouldn't be a deal with the greed & leverage boys.  Pittsburgh Business Times reported:

In a deal concurrent with the IPO of Consol Energy's coal mine master limited partnership, New York hedge find manager David Einhorn and his Greenlight Capital will acquire between 2 million and 5 million units in CNX Coal Resources, according to a Securities and Exchange Commission filing.
Consul management is monetizing a portion of its Pennsylvannia coal assets, increasing debt for the new venture.
Our entry into a new $400 million revolving credit facility and initial draw of $200 million, the net proceeds of which will be distributed to CONSOL Energy at the closing of this offering.
Consol stands to gain an additional $22 million via this debt distribution.  As far as deal and annual management fees investors were warned in the SEC filing:

The General Partner and its Affiliates may charge any member of the Partnership Group a management fee to the extent necessary to allow the Partnership Group to reduce the amount of any state franchise or income tax or any tax based upon the revenues or gross margin of any member of the Partnership Group if the tax benefit produced by the payment of such management fee or fees exceeds the amount of such fee or fees. 
Pittsburgh Business Times shared:
MLPs provide investors with a cash distribution, and in this case, CNX intends to pay, at minimum, 51 cents per unit.

Consol has had to lower to its expectations for the initial offering. Units were expected to price between $19 and $21, but now are set at $15. The company also had planned to make 10 million units available to the public. That, too, has been reduced, dropping to 8 million.

CNX Coal expects the offering and private placement to net between $141 million and $155.2 million. At the midpoint of the previous price range, it had expected to net $183.5 million.
The new venture will be virtual nonprofit, like other PEUs.  In addition it will operate with less reporting and scrutiny, courtesy of President Obama and Congress.  The SEC filing stated:

As a company with less than $1.0 billion in revenue during its last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may, for up to five years, take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to public companies. These exemptions include:
• the presentation of only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;
• deferral of the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;
• exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
• exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; and
reduced disclosure about executive compensation arrangements.
We may take advantage of these provisions until we are no longer an emerging growth company, which will occur on the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue, (iii) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period and (iv) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We have elected to take advantage of all of the applicable JOBS Act provisions, except that we will elect to opt out of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards (this election is irrevocable).
Tax avoiding, retiree benefit dumping CNX Coal Resources will operate as an emerging growth company, courtesy of President Obama and Congress.

Investors may be enticed by the opportunity for Consol to roll more of their assets into this venture:

The master limited partnership is beginning its life with operational control over and a 20 percent undivided interest in Consol's three Pennsylvania longwall mines -- the Bailey, the Harvey and Enlow Fork. There also is potential for the MLP to take Consol's interests in its Baltimore marine terminal, a coalbed methane pipeline system and the Buchanan metallurgical mine. 

Consol is looking at spinning off the Buchanan mine and other metallurgical assets into a separate, publicly held business later this year. If it is successful, CNX Coal's right of first offer for the Buchanan mine will automatically terminate, according to the SEC filing. 
Investors may want to recall the lies Carlyle Group co-founder David Rubenstein told in selling Carlyle Capital Corporation as a sure bet mortgage backed securities bet despite being highly leveraged (36x debt to equity).  Investors may want to recall his right of first offer to the City of Missoula on Carlyle owned Mountain Water.

Watch their actions, not their vacuous words.  They care about money, not people.  It's little consolation to see our elected leaders further the PEU agenda through PPACA and the JOBS act.

Saturday, June 27, 2015

America's Rising Boat: CEO Pay

America's economic recovery benefited one small, exclusive group since 2009:  The Guardian reported:

While CEOs have seen their compensation soar by 54%, the typical worker’s paycheck hasn’t budged.
This occurred under America's first black President.  The next two legs up on CEO compensation could come from companies jettisoning their employer provided health insurance benefit and Obama's new free trade agreements.

The CEO class is already shifting the burden of soaring retiree health care to people on fixed incomes.  PPACA's aim was to transfer health care coverage from employers to a tapped out Uncle Sam and individuals, i.e. the very people with no raises for the last six years.

As for free trade being the tide that lifts all boats:

Globalization has fostered better living conditions in the developing world. But improving the lives of Indonesian peasants willing to work for desperately low wages really has nothing to do with the decisions that closed some 63,300 American factories between 2001 and 2012.
America's CEOs made these decisions to shed American jobs, which happened to optimize executive incentive compensation.  It's a club where executives and large stock holders sit on each others boards and compensation committees:

Investors – whose representatives on the board of directors have the final say on CEO compensation – seem to become complacent during bull markets, indifferent to how rich CEOs, too, are getting, as long as they are sharing in the riches.
It's not complacency but bad management theory.  Board members assume one person or a small group of executives are responsible for the companies overall performance.  They hire compensation consultants who push extrinsic motivations schemes as the only way to get supposedly professional people to perform.

Average CEO compensation package is 303 times the size of the average earnings of their employees. The late management consultant Peter Drucker (who, as a winner of the Presidential Medal of Freedom, was no foe of capitalism) recommended that a CEO-to-worker pay ratio should never top 25; otherwise, he argued, they would “increase employee resentment and decrease morale”. By 2005, when Drucker died, the ratio was closing in on 400:1. 

 Employee resentment? Check. Low morale? Check. But neither has mattered much to the compensation committees signing off on CEO packages.
The club signing off on executive pay schemes is the same club that dealt with the Obama White House on PPACA and his super-sized trade giveaways.  It's the same PEU club that monetizes assets by placing them in limited partnerships, charging management fees, borrowing to pay themselves dividends and then reselling the venture for a final profitgasm.

I've written many times about the race to the lowest global common denominator on worker pay/benefits, taxes and regulation.  CEO pay is excluded, with two more potential boosts on the horizon.  President Obama will have delivered both.  His Presidential outcomes are worthy of his idol, Ronald Reagan.

Something is rising across America.  It's CEO pay. 

Thursday, June 25, 2015

Bankruptcy Cases: Disabled Poor vs. PEU

Bloomberg reported:

Monica Stitt, a 45-year-old woman, is unemployed, disabled, and living far below the poverty line. Still, a federal district judge decided in June that she could not cancel more than $37,000 in student debt in bankruptcy, because she hadn’t made a good-faith attempt at repaying the loans. 

Her entire income—about $10,000 per year, according to the judge—consisted of Social Security disability benefits and public assistance. She has been unemployed since 2008.

Stitt had borrowed $13,250, which had increased with interest to $37,400 by the time she filed for bankruptcy. After the bankruptcy judge ruled she couldn't shake the debt, the woman appealed to the U.S. District Court in Maryland without a lawyer, where a District judge upheld the bankruptcy court's ruling on June 9. 

The debtor didn’t meet the “undue hardship” test required by the bankruptcy code, U.S. District Judge Peter J. Messitte said in his opinion. Unlike credit card debt, student loans can almost never be discharged in bankruptcy. The only way people who have filed for bankruptcy can get rid of the debt is by proving that repaying them would impose "undue hardship" on their lives.

Contrast the bankruptcy case of Mrs. Stitt with The Carlyle Group's Church Street Health Management, a children's Medicaid dental provider.  It went bankrupt in 2012.  At the time Carlyle had nearly $40 billion in dry powder.

Church Street Health Management LLC’s filing with the Middle Tennessee U.S. Bankruptcy Court this week listed roughly $85 million of assets and $300 million of liabilities.
How much of that $300 million in liabilities came from a dividend recapitalization, where a private equity underwriter loads the affiliate with more debt, using proceeds to pay themselves a handsome dividend?  Church Street, a serial ethics violator, was booted out of Medicaid for five years.

The system allowed Church Street to reorganize in bankruptcy, dumping untold amounts of debt.  Mrs. Stitt wasn't so lucky.

Update:  Uncle Sam will garnish Social Security checks for citizens with old student loans, even if they're in their 80's and have dementia.  It's a profitable product line for the U.S. government. With annual returns of 23% Uncle Sam is in PEU territory.

Tuesday, June 23, 2015

Sperling Advice: Declining Middle Class Should Prostitute Homes

Government policy turned banks into high risk, high return operations under President Bill Clinton.  Clinton advisor Gene Sperling pushed for dropping Glass-Steagall before making huge money off Wall Street.  Sperling is back with the tonic for America's imploding middle class.  MarketWatch reported:

Each of the 50 states has seen its share of middle-class families shrink from 2000 to 2013, thanks to stagnant incomes and rising housing costs, according to an analysis from the Pew Charitable Trusts.

The eroding middle class poses a serious challenge to the nation's economic growth, given that households with mid-range incomes fuel spending on everything from cars to housing. Yet during the past 15 years, more of those middle-income families have slipped out of the sweet spot of the American economy, thanks to a confluence of negative trends such as declining or stagnant wages and a growing income gap.
Sperling recommends renting your middle class house, at least your primary one, as a way to make up for lost wages.

Mr. Sperling finds the supplemental money earned by our hosts (Airbnb) essentially represents a 14 percent annual raise for middle class families on our platform.

It's is not a raise.  It is rental income.  How much of a raise did Mr. Sperling get to write his report?  Does his report include:

1) How many middle class families lost their home in the last fifteen years?
2) How many middle class families have more than their primary home, as one needs a place to stay when they rent their home?

Americans across the country are feeling the stress of lower or stagnant income and rising costs of living, with Pew reporting in January that seven out of 10 Americans are strained by financial issues ranging from crushing debt loads, insufficient savings or income that's too low to cover their expenses.

Sperling and Airbnb sound like they want their service to be a policy solution to address America's shrinking middle class.  Might that include a big chunk of federal money to conduct outreach?   

While mid-income families are suffering, in many states the top 1 percent of income earners have captured all of the income gains since the Great Recession officially ended in June 2009.
Get that shrinking middle class:  You should prostitute your home to get by because your employer (owned or governed by the top 1%)  isn't going to give you a raise.