Monday, May 2, 2016

Eight Years Later Carlyle Faces Trial for CCC Implosion

The Carlyle Group's infamous co-founders and public board of directors are involved in legal matters from the spring 2008 failure of Carlyle Capital Corporation.  Carlyle's 2015 10-K filing stated:

Carlyle Capital Corporation Limited (“CCC”) was a fund sponsored by the Partnership that invested in AAA-rated residential mortgage backed securities on a highly leveraged basis. In March of 2008, amidst turmoil throughout the mortgage markets and money markets, CCC filed for insolvency protection in Guernsey

The Guernsey liquidators who took control of CCC in March 2008 filed a suit on July 7, 2010 against the Partnership, certain of its affiliates and the former directors of CCC in the Royal Court of Guernsey seeking $1.0 billion in damages in a case styled Carlyle Capital Corporation Limited v. Conway et al. 

The Guernsey liquidators allege that the Partnership and the CCC board of directors were negligent, grossly negligent or willfully mismanaged the CCC investment program and breached certain fiduciary duties allegedly owed to CCC and its shareholders. The liquidators further allege (among other things) that the directors and the Partnership put the interests of the Partnership ahead of the interests of CCC and its shareholders and gave priority to preserving and enhancing the Partnership’s reputation and its “brand” over the best interests of CCC. 

On July 24, 2013, plaintiffs filed an amended complaint, which contained further detail in support of the existing claims but no new defendants or claims. On December 20, 2013, defendants filed a defense to the amended complaint and on June 30, 2014 plaintiffs filed their reply. In September 2015, the liquidators served expert reports. Expert witness reports for defendants were served during the first week of February 2016. The Court has set a pretrial conference for early April 2016 and trial is scheduled for June 2016.
Will the trial occur as planned?  What business reporting organizations, FT, WSJ or Bloomberg, plan to cover the trial?  It will be interesting to see given how Carlyle's co-founders prize their good name. 

Sunday, May 1, 2016

Weekend Finds Two Carlyle Deals in Jeopardy

The future of two Carlyle Group deals got considerably cloudier over the weekend. WSJ broke the big news regarding the merger breakup between Halliburton and Baker Hughes.  Regulatory hurdles had The Carlyle Group and Halliburton in talks.  The Baker Hughes - Halliburton split doesn't mean Carlyle won't buy part of Halliburton, especially if the deal's failure means Halliburton owes Baker Hughes $3.5 billion in breakup fees.  That could be the impetus for an asset spinoff to Carlyle.

Other news came from The Courier Mail where Carlyle bid for Greencross, an Australian pet company.  Greencross' stock price rose enough to make the Carlyle bid irrelevant. 

DeParle Profits Personally Post Health Reform

White House health reformer Nancy-Ann Deparle made millions from for-profit healthcare companies prior to her appointment by President Barack Obama.  Three years after her White House resignation DeParle is back to same.  Board seats with hospital giant HCA and drug retailer CVS produced ample cash and significant stock positions worth nearly $1.8 million.  That does not include any pay or proceeds from Consonance Capital, her health care focused private equity underwriter (PEU).

Update 5-3-16:  ZeroHedge reported "Obamacare did not reform health care system; it merely transformed it to subsidize favored constituents."  Yup.

Carlyle Group's 2015 Paltry Tax Rate: Half of 1%

The Carlyle Group reported total revenues over $3 billion and net income of $402.2 million.  From that Carlyle's provision for income taxes for 2015 was $2.1 million.  That's an effective tax rate of half of 1%, 0.52% to be exact.

A decade of trips to Capital Hill and the White House paid off for Carlyle's David Rubenstein.  In an age of privilege not everyone is the same.

Monday, April 18, 2016

Great Rewards Await Obama for His Secrecy

RollingStone reported on President Obama's hoarding key financial documents from government sponsored enterprises like Fannie Mae and Freddie Mac.  The article stated:

In the pre-crash years, however, the firms' leaders acted less like the stewards of utilities and more like sleazy Wall Street hotshots. They made hyper-aggressive business decisions because their bonuses were tied to earnings growth. Some executives even engaged in Enronesque accounting manipulations in an effort to jack up their bonuses even further. These efforts led to record civil fines.
Former Obama Chief of Staff  and Investment Banker Rahm Emanuel served on Freddie Mac's Board of Directors during the pre-crash years.  Obama's National Security Advisor Tom Donilon was Fannie Mae's top lawyer and senior executive for years of fraudulent accounting.
The Obama administration turned Fannie and Freddie into cash cows with Treasury as their PEU sponsor:
Among other things, they demonstrate that not only did the government know the GSEs weren't in a "death spiral," it was actually quite confident in their future profitability well before it changed the bailout terms. Then and now, government officials lied about what they were doing, and why.
It will be interesting to see the names behind the bailout change strategy.  Given their past history with Fannie and Freddie will Donilon or Emanuel's name surface?

Saturday, April 16, 2016

Claren Road Kill

Wealth Management Report wrote:

Claren Road Asset Management, which is majority-owned by Carlyle Group, suffered the second biggest drop in size, with assets down by nearly $4 billion to $1.23 billion in January 2016. The credit-oriented fund, which had been popular with pension funds, had posted poor returns for more than a year, prompting many investors to exit.
That's a precipitous fall, down from a high of $8.5 billion in September 2014.  WSJ reported mid decline:

In July an influential investment consultant advised its clients to pull their money from the firm, and in August Carlyle disclosed that clients had requested nearly $2 billion back in the third quarter—roughly half the money the firm then managed.   
That's a PEU run.  I don't expect these losses to impact Carlyle's outstanding investment track record of 30% annual returns.

Thursday, April 14, 2016

Carlyle Technologies in Panama Papers

While searching for any Carlyle ties to Mossack Fonseca I found an odd piece in VanguardiaMX:  I used Google translate for the article which was published in Spanish:

In early versions of the information published in national media, Proceso magazine to head , described very generally the relationship of the company Altos Hornos de Mexico ( AHMSA ) with the signing Mossack Fonseca via the company Carlyle Technologies Corporation for " triangulation resources of the Mexican company since 2006, when the steel was bankrupt . "
I found the Proceso piece which translated to

The operation was made ​​through Carlyle Technologies Corp. , a company created in Panama through the office Mossack Fonseca , specializing in the operation in tax havens. AHMSA is so far one of the most important consortia of Mexico that appears in #PanamaPapers , global journalistic investigation that involved the magazine Proceso . 
Apparently Carlyle Technologies funded a $2.6 million luxury oceanfront condo for three executives with AHMSA.

There is no evidence that Carlyle Technologies is an affiliate of The Carlyle Group.  It's not on Carlyle's recent list of subsidiaries filed with the SEC.  However, there is an affiliate known as Carlyle Mexico Partners.

In 2007 Carlyle announced:

Global private equity firm The Carlyle Group today announced that it has raised $134 million for its first fund dedicated to investments in Mexico. Carlyle Mexico Partners (Carlyle Mexico), which is already 29 percent invested, makes control investments in companies primarily in Carlyle’s seven areas of sector expertise. CMP’s five dedicated investment professionals are based in Mexico City. Carlyle Mexico is headed by Managing Director Joaquin Avila. Mr. Avila established Carlyle Mexico Partners in January 2004 and has served as Co-head of the team since that time until becoming Head of the fund in December 2006. Mr. Miguel Valenzuela and Mr. Rodrigo Fonseca have also been part of the team of investment professionals since the group’s inception.
I found it interesting Carlyle had a Fonseca under their employ at Carlyle Mexico Partners.  The International Finance Corp invested $20 million in Carlyle Mexico in 2005  The Carlyle Group was founded on tax avoidance.  It would be interesting to know how Carlyle Mexico fulfilled that prime objective and any role Mossack Fonseca played in making the greed and leverage boys richer.

A 2015 story in Strictly Motor Yachts cited The Carlyle Group's purchase of Lauderdale Marine.  Further down it mentioned one player in Panama Papers story,

It was also recently reported that Dutch yacht builder Moonen Shipyards needed to put two builds on hold due to the financial troubles of one of its major shareholders. Altos Hornos de Mexico, one of that country’s largest steel plants was financing two yacht projects by Moonen, a 36 meter Martinique and 30 meter Matica, both in the builder’s Caribbean series. Altos attributed pulling its funding to the severe drop in steel prices in Mexico, which fell almost 40% in recent months.
AMSHA executives won't have new yachts to go with their oceanfront villa.