Thursday, March 31, 2011

Dunkin' Brands: Latest Carlyle IPO?


Dunkin' Brands could go public later this year in a $500 to $750 million offering.  Three private equity underwriters (PEU's) own Dunkin', The Carlyle Group, Bain Capital and Thomas Lee Partners.  Reuters reported:

An IPO by Dunkin' Brands, which owns donut and coffee seller Dunkin' Donuts and ice cream shop Baskin-Robbins, would be the latest in a number buyout-backed deals.
In other words, Carlyle's "Great Cash-In" continues.  It makes Congress' carried interest gift all the sweeter.

Carlyle might need more billions.  It could soon monetize itself, like Apollo Global Management.  Get in line for your PEU gift card, aka stock certificate.  

Update 4-1-11:  Bloomberg noted PEU's IPO frenzy

Wednesday, March 30, 2011

Gov. Rick Scott's PEU Day


Florida Governor Rick Scott ordered drug tests for state employees and citizens on state assistance.  Rick Scott, the ethically challenged ex-CEO of Columbia/HCA, started Solantic, a chain of urgent care centers, which happen to perform drug tests.  The Palm Beach Post reported on the possible conflict of interest: 

Scott divested his interest in Solantic in January, the controlling shares went to a trust in his wife's name
Controlling shares means more than 50% of the company.  The investment remains in Scott's immediate family.

Welsh, Carson, Anderson & Stowe (WCAS) owns part of Mrs. Scott's Solantic.  WCAS purchased their stake in 2007.

WCAS, like other private equity underwriters (PEU's), conducted deals for health insurers.  They and The Carlyle Group sold MultiPlan for $3.1 billion.  WCAS is selling Universal American, a Medicare Part D insurer to CVS Caremark.  After health reform passed, PEU's expressed interest in buying health insurors.  WCAS clearly states their focus on health care:

WCAS believes that demographic changes, adoption of new technologies, and ongoing regulatory changes, which create near-term uncertainty and value dislocations, will generate attractive areas for investment opportunities in the years ahead. 

Some examples of healthcare sectors in which WCAS invests include payors, facilities, providers, pharmaceutical outsourcing and medical technology
Politicians can create disruptions, near term uncertainty and value dislocations, the very thing WCAS desires.

Governor Rick Scott wants Florida to spend state Medicaid money differently:

Raising a groundswell of concern and questions about his health policy initiatives, especially his push to move Medicaid into private HMOs.
As for Solantic's sister WCAS company, Universal American, their recent conference call revealed::

On November 19th 2010, CMS (Center for Medicare/Medicaid Services) notified the Company of the imposition of intermediate sanctions
–– Effective December 5th 2010, marketing and enrollment of new members was suspended in Medicare Advantage plans

The suspension relates primarily to agent oversight and market conduct issues
It's not surprising the ethical race to bottom should be led by Rick Scott.One month after being sanction by CMS, Universal American announced a deal with CVS Caremark.  It effectively monetizes UA for current shareholders, while giving investors a stake in New UAM, the combined entity.  Adding to the bounty, the old UAM paid $2 a share special dividend in 2010.

As for Rick Scott's Solantic defense:

Any perception that the governor's business interests pose a conflict of interest with his health policies are "baseless and incorrect," said Scott's deputy communications director, Brian Hughes.

Scott is setting up sending state money to his former company, longtime friends and associates, all with an insatiable need for profit growth.  On that, Rick Scott and friends are remarkably consistent.

Take Tom Scully, ex. CMS Chief under President George W. Bush, and designer of Medicare Part D coverage.  Scully served on Solantic's Board of Directors.  He is also on the board of Universal American and Select Medical Corporation.  Scully stands to make $2.1 million, $15.20 per share for 138,680 shares held in his name.  The $15.20 comes from $13.20 in sale proceeds and the $2 special dividend.  It's not clear Tom's proceeds from indirectly beneficially owned 2,083,500 shares of Common Stock held by WCAS. of which Scully is a General Partner.  What's Tom's take of $31.6 million?



That indicates the kind of money PEU's can make on a deal.  I expect Governor Scott told close friends and associates, how he plans to steer state money.  At some point Scott has to tell the public, like he did on drug testing. 

Signal, privatize, profit.  That's the cycle for PEU's and purchased politicians.  It's easier to do when the PEU is in the politician, like Rick Scott.

Update 9-11-12:  PEU Mitt Romney avoided PEU Rick Scott on the Presidential campaign trail.  

Chris Dodd's Bright Lights


Chris Dodd is the new CEO and Chairman of the Motion Picture Association of America, Inc. (MPAA).  He didn't land at a private equity underwriter (PEU) or hedge fund, like Evan Bayh, Tom Daschle, or Bill Frist. Yet, the MPAA has a number of PEU connections.  The question is how Dodd will get Congress to subsidize movie making or enforce their franchise.  .

Note the global nature of Dodd's new job:

Former United States Senator Chris Dodd is Chairman and Chief Executive Officer of the Motion Picture Association of America, Inc., which serves as the voice and advocate of the U.S. motion picture, home video and television industries around the world.
He's primarily concern is "protecting this great American export during a challenging economy and an ever-changing technological landscape."  That's where a three decade serving Senator comes in handy

Update 1-20-12:  Chris Dodd's MPA looked to have Congress in hand for anti-piracy legislation (SOPA & PIPA).  After they regroup, Dodd will make another run at it.

Tuesday, March 29, 2011

Rubenstein's D.C. in New Economic & Political Environment


Bisnow will host Carlyle Group cofounder David Rubenstein on April 27, 2011.  Their website states:

The incomparable David Rubenstein returns for his third headline appearance with Bisnow, having riveted large audiences on two previous occasions with remarkable analysis and predictions concerning the key economic and political events and trends of our time—and the implications for our region, country, and world.

By some measures the greatest business success in the history of the Washington region, David founded the Carlyle Group in 1987, which has grown into the world’s largest private equity firm.
Barry Glassman will interview Rubenstein, described as having "original insight, disarming candor, and droll humor."  Bisnow calls it the Signal event of the year.  They revealed one new sign in relation to Carlyle.

The Carlyle Group is one of the world's largest private equity firms. David co-founded the firm in 1987 and it now manages $100B from 27 international offices. The company has 76 funds across four investment disciplines (buyouts, credit alternatives, growth capital, and real estate).

Evidence of the greatest business success includes:


Pay attention to this dynamic duo on foreign aid.  Watch how Rubenstein manages his Libyan history, in light of looming economic opportunities.  It's a "new economic and political environment," much like the Guilded Age with its Robber Barons. 

Obama's Libyan Mission a Logical Sandstorm


The Pentagon spent $550 million on its Libyan incursion, according to the AP:

Of the $550 million in added spending through Monday, about 60 percent was "for munitions, the remaining costs are for higher operating tempo" of U.S. forces and of getting them there, Cmdr. Kathleen Kesler, a Pentagon spokeswoman, said Tuesday. 
The half a billion went to support unknown rebels, according to another Pentagon official:

When asked at the Defense Department briefing about who the opposition rebels are, Vice Admiral William Gortney told the press that he did not know.  "We would like a much better understanding of the opposition but we don't have it," Gortney said. He said they are providing neither direct support nor is the U.S. "consulting" with those fighting Col. Gadhafi's forces.
Yet, Secretary of State Hillary Clinton meets with the Libyan opposition today in London.  The opposition is well enough organized to form a Libyan Oil Company and Central Bank two days after a March 17 UN Resolution.   To clear up the opposition confusion, the U.S. will dispatch a special envoy. 

Meanwhile NATO considers ground troops for new "regime stabilization," something ruled out in Obama's speech to the nation.  CFR noted Clinton's assertion the U.S. attacked Libya as pay back for allied cooperation in Afghanistan.  How much sand can they throw in the public eye?

Update:  The U.S. Treasury approved oil sales by said unknown rebels, opening the door for oil funding for al Qaeda.

Update 4-9-11:  WikiLeaks cables show how the U.S. courted Libya under George W. Bush and Barack Obama.

Update 9-17-16:   The British investigated the West's abysmal intervention in Libya.  It cited Libya's current state as chaos.

Monday, March 28, 2011

Odor Issues


The Carlyle Group, a private equity underwriter (PEU), will reduce its stake in Hertz.  In 2009 Hertz successfully tackled vehicle odor problems.  Carlyle tried to get rid of their PEU by calling the firm a Global Alternative Asset Manager (GAAM). It's not clear if their new name stuck.  Check your shoes...

The Gods Are Cashing In


CNBC reported Carlyle may monetize itself via an IPO, like Apollo Global Management:

Private equity firm Apollo Global is set to go public this week, and if the sale goes well, a gaggle of alternative investment managers could follow.

Bankers are holding discussions with firms including Oaktree Capital Management and Carlyle Group about going public and are watching to see how Apollo does, sources familiar with the situation said.
Apollo was the god of prophecy, herds and plague.  It will be interesting to see which applies to the PEU's IPO.

Update 4-9-11:  CNBC offered access to capital as a motivator for PEU's going public:  "There is a material advantage to being public in terms of cost of capital and access to capital."  That is disputed by Bloomberg's story on PEU access to cheap and plentiful leveraged loans.  PEU IPO's are to further enrich founders and principals.  How far might they rocket PEU's up the world's richest list, our modern day version of godliness?   Or, might it be godlessness....

Update 6-3-11:  Carlyle is on track for a third quarter IPO, according to WSJ.

Sunday, March 27, 2011

Treasury's Oil Flexibility on Libya


The U.S. Treasury sanctioned Libya's National Oil Corporation.  In doing so it left open the door:

Treasury will continue monitoring the National Oil Corporation’s operations in Libya.  Should National Oil Corporation subsidiaries or facilities come under different ownership and control, Treasury may consider authorizing dealings with such entities.

Bloomberg reported: on a deft group of rebels, acting only two days after the UN Security Council adopted a resolution on March 17 that froze the foreign assets of the Libyan National Oil Corp. and the Central Bank of Libya:

Libyan rebels in Benghazi said they have created a new national oil company to replace the corporation controlled by leader Muammar Qaddafi whose assets were frozen by the United Nations Security Council.

The Transitional National Council released a statement announcing the decision made at a March 19 meeting to establish the ‘Libyan Oil Company as supervisory authority on oil production and policies in the country, based temporarily in Benghazi, and the appointment of an interim director general" of the company.

The Council also said it "designated the Central Bank of Benghazi as a monetary authority competent in monetary policies in Libya and the appointment of a governor to the Central Bank of Libya, with a temporary headquarters in Benghazi..
 
According to Professor Peter Dale Scott, it gets  more intriguing:
Americans, Britons and the French are finding themselves as comrades in arms with the rebel Islamic Fighting Group, the most radical element in the Al Qaeda network [to bring down Gaddhafi]. Secretary of State Hillary Clinton admitted the risks of the unholy alliance in a congressional hearing, saying that the Libyan opposition is probably more anti-American than Muammar Gaddhafi.
The chess game is on, only real lives are at stake.

Update: Forbes stated Colonel Gadhafi threatened to nationalize foreign oil company assets in Libya at a Georgetown University speech in 2009.(Thanks to Economic Policy Journal)

Update 3-28-11:  Rebels are in active discussion to have oil sanctions lifted (from Reuters via EPJ)  If global interventionists drop pallets of cash in rebel controlled areas, what's to keep it from landing in Al Qaeda's hands?  While the U.S. Treasury and Hillary Clinton meet with Libyan opposition, the Pentagon has no clue as to who the opposition is.

Update 12-4-12:  Libyan oil fever fades.  Might this lack of interest get Western companies more advantageous deals?

Unaccountable Fran and Her Carlyle Group Dance


White House Homeland Security Adviser Frances Townsend revealed her assessment of Libyan strongman Colonel Gadhafi.  She based it on her visit with Gadhafi at his Tripoli compound:
 
"It's all about thuggery there," said Townsend
So Fran knew this as a member of the Bush White House?  Courting the Libyan thug were:

Carlyle Group co-founder David Rubenstein traveled to Libya in 2006.

Homeland Security Adviser Frances Townsend visited Gadhafi in the summer of 2007

Saif Gadhafi flew to New York in 2007 to meet with Frank Carlucci

The Bush administration put a full court press on Gadhafi's son Saif in 2008

The Carlyle Group hosted a dinner in Saif's honor during the 2008 visit  with James A. Baker, III and Frank Carlucci in attendance.

The Carlyle Group was one of the first to receive money from the Libyan Investment Authority, established in 2006.
Why did they allow the Libyan Investment Authority to invest in Carlyle Group funds if the Bush White House knew Gadhafi was a thug?  Instead these people legitimized Gadhafi for the world community.

David Rubenstein and fellow PEU Stephen Schwarzman flew to Tripoli for the wedding of LIA's Deputy Chief Executive in 2009.

Senator John McCain tweeted from the Gahdafi Ranch in 2009

Townsend advised George W. Bush and Barack Obama as a member of the Presidential Intelligence Advisory Board.  Did Fran forget Gadhafi was a thug between her 2007 visit and her 2008 appointment to the PIAB?

Fran danced with The Carlyle Group before Libya.  She omitted a Carlyle affiliate from her hapless Hurricane Katrina Lessons Learned report.  LifeCare Hospitals lost 25 patients in Katrina's horrific aftermath.  LifeCare had a Long Term Acute Care Unit inside Memorial Medical Center, which also got no mention.  Between the two corporate entities, 35 people died.  Oddly, a year after Fran's Katrina whitewash was foisted on the public, Jeb Bush landed a spot on Tenet Healthcare's board of directors.  Tenet owned Memorial Medical Center when Katrina struck.

After leaving the White House Fran consulted on risk management and government investigations for James A. Baker, III's law firm.  Baker helped host the 2008 visit for Saif Gadhafi.  Fran was appointed Senior Advisor at Monument Capital, where Baker, Frank Carlucci and Mac McLarty serve on Monument's "hands on" advisory board.   Fran is now Senior Vice President for Worldwide Government, Legal and Business Affairs at MacAndrews & Forbes.

Consider two Fran Townsend quotes:

"Any commercial or economic crisis creates business opportunity."

Overall, Townsend called it "an absolutely bizarre experience ... like a bad movie."

I couldn't agree more What's she spinning now and for whom?

Update 4-9-11:  ForeignPolicy has a priceless Townsend story, courtesy of WikiLeaks.  It involves another Middle East strongman, Yemen President Ali Abdullah Saleh.  Also, McClatchy summarized WikiLeak cables regarding George W. Bush and Barack Obama's outreach to Libya's Gadhafi.

Update 6-19-11: Fran submitted an article on corporate interests harming America's security relative to Iran and North Korea.  One minute she's on the corporate side, the next she's not.  Townsend can read from any script.

Update 7-1-11:  The media continues offering small fries as sacrificial lambs in the West's efforts to open up Libya.  The big boys skate under the radar.

Saturday, March 26, 2011

Apollo Global Management's $1.1 Billion IPO


 Apollo Global Management will go public in a $1.1 billion share offering. Private equity underwriters (PEU's) will sell anything to make monstrous profits, including their distinctive competency of being a privately held entity. Consider this from APO's S-1:

Apollo is a leading global alternative asset manager (GAAM). We are contrarian, value-oriented investors in private equity, credit-oriented capital markets and real estate, with significant distressed expertise.

Here's what shareholders are buying, along with 32.9% of the economic interests of Apollo Operating Group.  :


Private equity is known for its out-sized returns:

Our private equity funds have generated a gross IRR of 39% and a net IRR of 26% on a compound annual basis from inception through December 31, 2010, as compared with a total annualized return of 7% for the S&P 500 Index over the same period.

Recall the tax break for firms buying back debt for pennies on the dollar.  Apollo took advantage of the debt crisis and Uncle Sam's largess:

For example, as of December 31, 2010, Fund VI and its underlying portfolio companies purchased or retired approximately $18.7 billion in face value of debt and captured approximately $9.3 billion of discount to par value of debt in portfolio companies such as CEVA Logistics, Caesars Entertainment, Realogy and Momentive Performance Materials.

Apollo's biggest investors are public pension funds, including CalPERS, and sovereign wealth funds from oil-rich Middle Eastern countries.

On July 13, 2007, we sold securities to the California Public Employees’ Retirement System, or “CalPERS,” and an affiliate of the Abu Dhabi Investment Authority, or “ADIA,” in return for a total investment of $1.2 billion. We refer to CalPERS and ADIA as the “Strategic Investors.”

In total, from our inception through the date hereof, the Strategic Investors have invested or committed to invest approximately $7.6 billion of capital in us and our funds.


It's not clear if CalPERS or Abu Dhabi Investment Authority plan to sell their shares in the IPO.  Nevertheless, Apollo went global in a big way:

Since the beginning of 2007, we have experienced significant globalization and expansion of our investment management activities. We have grown our global network by opening offices in Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai.
Like many PEU's, Apollo conducted a debt for dividend sale:

On April 20, 2007, AMH, one of the entities in the Apollo Operating Group, entered into a credit facility, or the “AMH credit facility,” under which AMH borrowed a $1.0 billion variable-rate term loan. We used these borrowings to make a $986.6 million distribution to our managing partners and to pay related fees and expenses.
Three months later, managing and contributing partners received another cash injection:

As part of the Reorganization, the managing partners and the contributing partners received the following, $1.2 billion in cash in July 2007, excluding any potential contingent consideration;

Apollo's selling shareholders and three managing partners, Leon Black,  Joshua Harris and Marc Rowan, will monetize their PEU and its forty six Cayman Islands subsidiaries.  It's not clear if ex-Senator Evan Bayh got shares for his role as Senior Advisor.

How will Evan's former peers in Congress set up Apollo's next distressed investments?  How will public ownership impact Apollo's management fees charged to affiliates, already at $431 million?   What happens when management greed is the cause of organizational distress?  Stay tuned....

Friday, March 25, 2011

Explosive Budget Cuts for Texas


The Texas Legislature intends bone-crushing budget cuts for health care, human services and education.  Medicaid cuts for the Concho Valley are projected at $153 million.  Tom Green County alone will see a loss of $116 million in Medicaid funding from 2010-2011. 

Nursing home cuts- 33%
Angelo State University- 20%
Health & Human Service cuts (includes Medicaid)- 30%
Texas has experience with a 25% cut in maintenance at BP's Texas City Refinery.  The result was explosive, killing 15 people.  State cuts are more likely to implode safety net providers, already financially stressed.  


Ironically, Texas will help President Obama send 6 million people off Medicaid from 2011-2013, a critical assumption under CBO's scoring of PPACA.

Misery as far as the eye can see, except for private equity underwriters (PEU's) with billions to invest.  Step right up PEU's, buy your Texas hospital or nursing home at liquidation prices!

Thursday, March 24, 2011

Latest Moves in Carlyle's Great Cash In


The Carlyle Group announced a series of moves monetizing affiliates.

Carlyle Group and Providence Equity Partners LLC are planning to sell Swedish cable operator Com Hem AB.

ManorCare will sell $6.1 billion worth of nursing home facilities to a health care REIT.  

Allison Transmission will go public in a $750 million offering.

Carlyle sold Offshore Incorporations to IK Partners.

Carlyle put Insight Communications on the auction block.

Dunkin' Brands  sold $7.4 million in mixed securities ($26 million since 2009)
In other news Carlyle is headed to Sub-Saharan Africa, where target industries include consumer goods, financial services, agriculture, infrastructure and energy.  Offices will be in Johannesburg, South Africa, and Lagos, Nigeria.  Nigeria is widely know for corruption. How about Angola, where Carlyle's Cobalt Energy is in a joint venture with shadowy partners?

Update 6-8-11:  Carlyle is in the running for a South African equipment repair firm, Savcio Holdings.

Wednesday, March 23, 2011

Carlyle's Allison Road


The Carlyle Group will take Allison Transmission public in a $750 million offering.  Directors signed the S-1 on March 18, 2011.  Reuters reported on Allison's IPO:

Owners Onex and The Carlyle Group said they would use proceeds from the offering to repay debts and for investments in technology, infrastructure and research.
Allison Transmission is adding jobs in Hungary and India:

The Company commenced construction of a new facility in Szentgotthard, Hungary in the fourth quarter of 2010 and expects to be completed with the facility by 2011. Production at the facility is expected to begin during 2011.

During the fourth quarter of 2010, the Company committed to expand its production in its Chennai, India facility by manufacturing components for our global manufacturing operations as well as assembling transmission products for emerging markets. Production is expected to commence during the second half of 2012.
As for government grants, the S-1 offered:

In 2009, the Company was notified by the U.S. Department of Energy that it was selected to receive matching funds from a grant program funded by the American Recovery and Reinvestment Act for the development of Hybrid manufacturing capacity in the U.S. (the “Grant Program”). For the years ended December 31, 2010 and 2009, the Company recorded $12.0 million and $1.8 million of reimbursement of allowable expense to Other income.
How much did Hungary and India give, since they're getting Allison's new manufacturing capacity?

The S-1 mentioned labor relations with U.A.W. Local 933. 

On May 1, 2008, the Company and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) Local 933 reached an agreement on a labor contract covering approximately 2,200 hourly employees that replaced the hourly defined benefit pension plan with a defined contribution pension plan effective for all new hires from May 19, 2008 through November 14, 2012. The agreement also eliminated retiree healthcare for those hired after May 18, 2008. The charge to expense for the hourly defined contribution pension plan was $0.5 million, $0.2 million and $0.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.
There was no mention of participation in the Early Retiree Reinsurance Program, although the U.A.W. liked that component of health reform.  That's because GM retained responsibility for retiree medical, dental, vision and life insurance for salaried employees eligible to retire when Carlyle & Onex acquired the firm.

GM is responsible for medical, dental, vision and life insurance liabilities for hourly employees who retire prior to the expiration of the current collective bargaining agreement between the UAW and GM that expires in September 2011.
Federal ERRP funds for GM/UAW Retiree Medical Benefits Trust could pay for retiree benefits at Allison Transmissions.  The S-1 ensures it isn't Allison for two segments of employees.

Carlyle knows how to find the government teat.  Elected officials pave the way.

Authorized Dealings with Non-Gadhafi Libyan Oil Entities


The goo thickens in Libya:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today identified 14 companies owned by Libya’s National Oil Corporation, as subject to sanctions pursuant to Executive Order (E.O.) 13566.

The National Oil Corporation is the centerpiece of Libya’s state-owned oil apparatus, and controls a network of companies involved in oil exploration, production, and sale.  E.O. 13566 blocks all property and interests in property of the Government of Libya and its agencies, instrumentalities and controlled entities within U.S. jurisdiction, whether specifically identified by OFAC or not.  U.S. persons are prohibited from engaging in business with any Libyan state-owned entity. Today’s identifications are intended to aid financial institutions in meeting their obligations under E.O. 13566.

“The Libyan National Oil Corporation has been a primary funding source for the Qadhafi regime,” said OFAC Director Adam J. Szubin. “Consistent with UN Security Council Resolution 1973, all governments should block the National Oil Corporation's assets and ensure that Qadhafi cannot use this network of companies to support his activities.”

Treasury will continue monitoring the National Oil Corporation’s operations in Libya.  Should National Oil Corporation subsidiaries or facilities come under different ownership and control, Treasury may consider authorizing dealings with such entities.

Will any oil company armies head to Libya?  BP got the U.S. Coast Guard to do its bidding in the Gulf of Mexico last summer?  How will the Military-Industrial Complex take the bait on Libya?  That's assuming they aren't already directing strategy.

Might Col. Gadhafi sell his state owned companies to American-branded global oil giants?  Would the Tomahawk happy west let Gadhafi take his wampum and run?

Does the change of control provision apply to the other 16 Libyan state owned firms sanctioned by Treasury?  The Carlyle Group has Libya Investment Authority funds under management.  They haven't acknowledged LIA's stake, despite prior news articles to that effect.  Oddly, LIA owns another Libyan oil company, Tamoil.

Also strangely, money flow from Western oil companies to Libya remains intact, according to BP and Italian oil company Eni.  Reuters reported:
BP Plc said on Thursday it saw its contract with Libya's National Oil Corporation as still valid, a day after Italy's Eni became the first Western oil and gas firm to try to rebuild bridges with NOC.

Personally, I'm waiting for President Obama to say Libyan oil money will pay for the U.S. led intervention.

(Thanks to Economic Policy Journal)

Tuesday, March 22, 2011

Carlyle Monetizes ManorCare Physical Assets

The Carlyle Group will sell HCR ManorCare's real estate assets for $6.1 billion and lease them back from HCP, a health care real estate investment trust.  HCP's SEC filing states:

HCP will acquire from HCR ManorCare 334 post-acute, skilled nursing and assisted living facilities located in 30 states, with the highest concentrations in Illinois, Ohio, Pennsylvania, Michigan and Florida. 

The deal will make Carlyle $1.5 billion on ManorCare's nursing home facilities.  In 2008 Carlyle financed the ManorCare deal with $4.6 billion in a secured real-estate credit facility, comprising approximately 330 skilled nursing facilities and assisted living facilities.

HCP stated it owned $1.7 billion of CMBS facility debt, which it will put toward the $6.1 billion deal.  HCP purchased much of the CMBS debt at a deep discount.

How will facility cost increases be passed on to taxpayers via Medicaid?  Higher lease fees will wind through each nursing home's Medicaid cost report, eventually impacting the monies paid by states and the federal government.

The Master Lease will provide for minimum rent in the first year of $472.5 million, with minimum rent to increase by 3.5% per year during the subsequent five years of the term and by 3% per year for the remaining portion of the initial term.
A review of ManorCare's property plant and equipment is in order:

Prior to the Carlyle deal, book value stood at $1.47 billion (September 2007)
This rose to $4.6 billion via the CMBS facility (December 2007)
HCP is paying $6.1 billion in consideration for the same assets (plus four new facilities)

Whose home rose 315% in value in the last four years?  Raise your hand.  The Carlyle Group's "Great Cash In" continues.  Carlyle's back....

Update 3-23-11:  Texas nursing homes should go for fire sale prices once huge Medicaid cuts are implemented in the "Great Texas ExPerryment."  Carlyle's ManorCare should have lots of capital to buy.  It wouldn't be the first time Texas Republicans set the stage for Carlyle Group profits.

Update 5-7-11:  Carlyle's ManorCare is cited in a letter lamenting the state of nursing home care.   They missed the nature of Carlyle's monetizing ManorCare's physical assets.  Carlyle still owns the nursing home operations. 

Monday, March 21, 2011

CalPERS Targets $5 billion for Infrastructure

PEHub reported:

The California Public Employees’ Retirement System , the biggest U.S. public pension fund, will buy more direct stakes in infrastructure assets such as roads and airports, Reuters reported. The fund is targeting $5 billion in infrastructure investments over the next several years. CalPERS currently has $860 million committed to infrastructure, most through private equity funds including Carlyle Group and Alinda Capital, Reuters said.
While CalPERS will bypass p[rivate equity underwriter (PEU) funds for direct investment, look for PEUs to play a role:

Direct investments for CalPERS were likely to take place with it as a member of a consortium.


“There is one thing that we recognise about our programme, we are going to be building partnerships, and I mean that quite broadly, with partners who are capable, with fund managers and with others of our peers, in consortia.”.

All CalPERS needs are reasonably priced infrastructure assets.  Current state and local budget crises should provide numerous opportunities.  Will any middlemen be needed?  I envision new expanded terms to cover such development, like "public-private partnership pension PEU placement program (P7)."  Say that fast three times.

Don't forget international opportunities.  President Obama told Brazilians the U.S. would help them with infrastructure needed for the Summer Olympics and World Cup.  It happens The Carlyle Group loves infrastructure and Brazil.  

Sunday, March 20, 2011

Carlyle Group's Red Light District


AZCentral reported on traffic cameras makers, whose products are used to detect red light runners and speeders.  The Carlyle Group, a private equity underwriter (PEU), will buy industry leader Redflex:

Redflex Holdings Ltd., an Australian company with its North American headquarters in Phoenix, also is growing fast. Three-quarters of its business is in the U.S., and it serves Phoenix-area communities including Chandler. Redflex reported $136 million in revenue last year, up about 4 percent from 2009.

Australia's Macquarie Group Ltd. and U.S. finance company the Carlyle Group have proposed buying the company for about $300 million, apparently confident that despite some backlash, the industry is likely to grow.
Redflex's board endorsed the bid.  It is complying with requests, including the provision of audit working papers. 

The first half of the year saw revenue rise to $71.6 million, an increase of 10%.  The Half Year report went on to say:

Redflex continues to support “grassroots” efforts in several states, including Illinois, Ohio, New Jersey, Tennessee, Virginia, Arizona and Texas with other states like Louisiana and Washington to join in coming months.

Redflex continues to lead the industry in proactively seeking to enable and improve the statutory basis for road safety systems as well as defend against adverse developments. During 2010, all efforts to limit or ban Redflex’s programs through state legislation were defeated. Redflex is supporting the filing of bills in many current markets and in certain new states seeking enablement and enhancements for red light and speed traffic safety programs. The 2011 legislative season has started with a number of negative bills filed in Arizona, Washington, Virginia, Texas, and California.
Do I detect a new statewide revenue source for Texas?  Senator Robert Duncan is looking for $5 billion for the coming biennium.  Will Carlyle affiliates continue their cozy relationship with Governor Rick Perry?  Macquarie Group specializes in toll roads, another possible revenue generator for Texas.  Keep an eye on Senator Duncan's committee.  What will it set up the PEU boys?

Update:  Carlyle's due diligence team may want to brush up on apps.

Update 5-5-11:  Carlyle upped its offer to $2.75 a share for Redflex.

Update 5-8-11: Last minute resistance from major shareholders could put the brakes on Carlyle's bid for Redflex.

Update 7-7-11:  Municipalities counting on revenue from red light cameras are highly disappointed.

Update 3-3-13:  Redflex wrestles with corruption charges, i.e. bribing Chicago officials.  Based on this behavior, Redflex would've had good company in The Carlyle Group family, alongside bribers Synagro Technologies and ARINC.  Carlyle itself has a history of bribes and settling bribe related cases.

Update 8-15-14:  Redflex was deep into bribing officials when Carlyle made its play for the company.  Xerox now has the Chicago red light camera franchise.

Saturday, March 19, 2011

Board Slots: Peter Pace Seats Eight, plus One


General Peter Pace added another board seat.  His AAR Corp. slot came with restricted stock options.  It's Peter's eighth board position:
Berman Capital
SM&A Strategic Advisers
Neohapsis
Finmeccanica
Pike Electric
ILC Industries
Pelican Products
Wi2Wi
AAR Corp.
AAR's Government and Defense Services division is the fastest growing segment and now provides the largest share of revenue. After appointing Pace to the board, AAR announced earnings:

Sales to government and defense customers increased 46% over last year and were principally driven by sales at the Company’s airlift services business, which was acquired in the fourth quarter of fiscal 2010, and growth at the Company’s defense logistics business.
It expounded on one large airlift order.
the Company announced that it had been awarded a task order under the U.S. Transportation Command’s latest long-term, multi-billion dollar Indefinite Delivery/ Indefinite Quantity contract for rotary-wing airlift in Afghanistan. The task order has a one-year initial term with four one-year renewal options and is valued at approximately $450 million over the five year term.

In the same quarter Peter Pace joined AAR's board, five investment firms took positions in the company.  Peter is a rainmaker:

Alger Fred Management Inc. bought roughly 5%.
Dimensional Fund Advisors LP bought 6%
Earnest Partners LLC took a 7% stake
BlackRock purchased 7.8%

BlackRock's Larry Fink recently noted, "markets like totalitarian governments."  Is the next best thing having a General on the board?

Invesco Ltd bought the biggest chunk at 9.2%

Invesco is synonymous with Wilbur Ross.   Ross and his PEU partners took $2.3 billion in FDIC cash to recapitalize BankUnited.  What about AAR makes him happy?  Fink and Ross can read the signs, $.  General Peter Pace must have it plastered on his backside  Where Peter sits, defense and government money appears.

Update 10-29-15:  Pace was appointed to Textura's board in December 2012

Friday, March 18, 2011

Disaster Queens in Running for FBI Chief

Frances Townsend and Jamie Gorelick are potential nominees to replace Robert Mueller as FBI Chief.  Both played roles in unprecedented disasters.  Fran was Homeland Security Chief during Hurricane Katrina, while Jame served as BP's lawyer for the Gulf Oil Spew.  In addition, Jamie helped set the stage for the financial meltdown as Vice Chair of Fannie Mae during a six year accounting fraud.

Fran refused to testify before Congress on the White House's abysmal response to Hurricane Katrina. She skipped town as the last remaining hospital patients were evacuated after five days in sweltering, putrid conditions.   When Fran returned from delivering a letter on terrorism to Saudi Arabia, she crafted the hapless White House Lessons Learned report. On Katrina's five year anniversary, I wrote:

Townsend's report omitted any mention of Memorial Medical Center, the hospital with the highest patient death toll. Thirty five people perished in Memorial's hellish halls. Twenty five died in the LifeCare unit, which rented a floor in the Tenet Healthcare owned facility. 

LifeCare is an affiliate of The Carlyle Group and is vigorously fighting wrongful death lawsuits.  Six years after Katrina, relatives await justice.  Isn't that the role of the FBI

Jamie turned the U.S. Coast Guard, U.S. Fish & Wildlife and the FAA into BP's private army.  She led BP's risk management effort, which minimized the size of the disaster at every turn.  Jamie ensured BP would keep producing in the Gulf of Mexico by tying victim's payments to future U.S. oil production.  She removed BP's liability for unemployed oil workers in negotiations with the Obama team.. 

Fran and Jamie are dark, dark horses with unprecedented pasts.  The FBI should have thick files on both.   

Thursday, March 17, 2011

U.S.-China CEO Dialogue


Bloomberg reported:

The U.S. Chamber of Commerce, the biggest business association, and a Chinese counterpart set up a group to allow chief executive officers from the two countries to exchange views on policy.
The inaugural dialogue in Beijing today was attended by Carlyle Group co-founder Daniel D’Aniello.  Interesting in light of other recent stories, including Carlyle's $5 billion shipping deal with Chinese state owned companies.  Don't forget a Chinese bank floated real estate loans to Carlyle, which leads to the next story.

The Bank of China and the Industrial and Commercial Bank of China invested heavily in New York real estate.  ICBC did the deal with Carlyle on 650 Madison Avenue. Foreign banks provided the largest average loan at $41 million, far ahead of insurance companies at $27 million.  Borrowers like Chinese banks because they don't sell the loan.

"Markets like totalitarian governments."--Larry Fink, BlackRock
Can you feel the economic freedom from Carlyle meeting with the Chinese?

Wednesday, March 16, 2011

Carlyle Group in Running for Galveston Port

The Port of Galveston will form a public-private partnership with a joint venture comprised of The Carlyle Group or Hutchison Port Holdings.  The Bank of Montreal helped Galveston secure qualifying bidders.   KHOU.com reported:

The two private companies proposed a 75-year master lease that would give them control of existing leased assets, a 100-acre terminal to be developed on the west end of the port’s island property, a 20-acre terminal for roll-on, roll-off cargo, port land on Pelican Island and the cruise ship terminal and operations. In exchange, the port would have about $60 million in debt paid off, upfront cash, 10 years of capital expenditures, annual expense payments and a share of profits from cruise and freight revenues.
This level of detail is wholly inadequate for oversight.  Will Galveston post the proposals online for the public to see?

As for bidder motivation, Hutchison Port Holdings looks to establish a U.S. presence, while partner Carlyle searches for its first port deal.  The Carlyle Group submitted a proposal for Virginia's port operations.  It inked a deal with Connecticut for 23 rest areas. 

Galveston's next step is hiring a consultant to evaluate the proposal.  A decision could be made in two weeks between consulting firms KPMG and Martin Associates.

The board also voted to hire Houston-based Vincent & Elkins for special legal counsel for the proposed lease, allotting up to $50,000 for the attorneys.
Funny, Vincent & Elkins has a Hutchison.  Ray Hutchison, husband of Senator Kay Bailey, specializes in public finance.  Will the public-private partnership have access to low cost public financing?  How might publicly financed assets make their way into private pockets over 75 years time?  A good lawyer can help navigate such treacherous waters.

Update 3-17-11:  The Galveston County Daily News reported on a bill filed in the Texas House that allows private investors to set rates/tariffs and establish/enforce rules at public ports.

Update 4-9-11:   HB 3456 wasn't needed after all.  The privatization deal remains full steam ahead.

Update 4-14-11:  Carlyle and Hutchison pulled out of Galveston port negotiations.

Tuesday, March 15, 2011

Fran Townsend Senior PEU


Frances Fragos Townsend's primary job changed.  She's no longer the head of Baker Botts Investigative Division, but a Senior Vice President for MacAndrews & Forbes.  MacAndrews & Forbes states it is a holding company, but it has much in common with private equity underwriters (PEU's).  Look how many entities were involved in their 2009 Revlon deal:

MACANDREWS & FORBES GROUP LLC
MACANDREWS & FORBES LLC
MACANDREWS COSMETICS HOLDINGS INC.
MAFCO FOUR LLC
MAFCO ONE LLC
RAYMOND G. PERELMAN
RCH HOLDINGS ONE INC.
REV HOLDINGS LLC
RONALD O. PERELMAN

This is how they control a "public company" in PEU like fashion:

MacAndrews & Forbes Reporting Persons have been, and currently are, able to control the election of the entire Board of Directors of Revlon and control the vote on all matters submitted to a vote of Revlon’s stockholders, including the approval of mergers, consolidations, sales of some, all or substantially all of Revlon’s assets, issuances of capital stock and similar transactions.

Fran Townsend landed a new board seat at SIGA Technologies, a company specializing in the development of pharmaceutical agents to combat bio-warfare pathogens, with a smallpox drug as its lead product.   It's a MacAndrews & Forbes holding.  Her seat came with stock options for 25,000 shares at $15.29 per share.

CityBizList reported Fran's work history:

Ms. Townsend, age 49, is currently Senior Vice President of Worldwide Government, Legal and Business Affairs at MacAndrews & Forbes Holdings Inc. Prior to joining MacAndrews & Forbes, she was a partner at the international law firm Baker Botts, LLP following a distinguished career in government. Among her governmental responsibilities, Ms. Townsend was Assistant to President George W. Bush for Homeland Security and Counterterrorism; chair of the Homeland Security Council; Deputy Assistant to the President and Deputy National Security Advisor for Combating Terrorism; and first Assistant Commandant for Intelligence for the U.S. Coast Guard. In addition to her current responsibilities at MacAndrews & Forbes, Ms. Townsend is also a counterterrorism, national and homeland security expert for CNN and serves on numerous government advisory and nonprofit boards, chairs the Board of the Intelligence and National Security Alliance, and is a member of the Council on Foreign Relations and the Trilateral Commission.

Not mentioned in this bio are her board seats at Scientific Games and DRS/Finmeccanica Defense Solutions.  Also omitted was her Senior Advisor position with Monument Capital, which has a Carlyle stacked advisory board.  Fran also contributes to The Daily Beast, fitting for her beastly Lessons Learned report on Hurricane Katrina.    For some reason the media can't find that story.

Will they find Uncle Sam's "on again-off again" order for 1.7 million treatment courses of SIGA's smallpox antiviral?  How might Fran get that back on track?  Noteworthy items from SIGA's annual report:

The U.S. government is the principal source of worldwide biodefense spending. Most U.S. government spending on biodefense programs results from development funding awarded by NIAID, BARDA and the Department of Defense (“DoD”), and procurement of countermeasures by the HHS, the CDC and the DoD. The U.S. government is now the largest source of development and procurement funding for academic institutions and biotechnology companies conducting biodefense research or developing vaccines and immunotherapies directed at potential agents of bioterror or biowarfare.

As for SIGA's core competencies in smallpox and hemorrhagic fever viruses:

We do not have the ability to independently conduct the clinical trials, and certain animal trials, required to obtain regulatory approval for our products. We depend on independent investigators, contract research organizations and other third party service providers to conduct trials of our drug candidates and expect to continue to do so.

We currently rely on third parties to manufacture drug candidates that we require for pre-clinical and clinical development. In addition, we indicated in our response to the BARDA Smallpox RFP that we intend to manufacture ST-246® using contract manufacturers.
 It's not only what you know, it's who...

Monday, March 14, 2011

Carlye Group Gets "Make Up Ships" for Failed Wood Deal?


"Markets like totalitarian governments."--Larry Fink, BlackRock
After The Carlyle Group's investment in China Forestry went limp, China made pleasy-pleasy by signing long-term ship leases with a Carlyle joint venture. Gerry Wang will head the new venture.

Once upon a time, China Forestry seemed solid.   WSJ reported:

China Forestry has a market capitalization of HK$9.03 billion and counts private equity firm Carlyle Group LLC as a major shareholder.
Carlyle had this to say in December 2009, when China Forestry went public on the Hong Kong market, raising $200 million:

“Carlyle is proud to have supported (China Forestry) with global resources and management expertise to help realize their business and strategic initiatives."
Carlyle bragged in their annual report:

We realized several substantial listings on public equity markets in 2009 and early 2010, including:
China Forestry Holdings. Plantation forest operator in China listed on the Hong Kong
Stock Exchange, generating total gross proceeds of $200 million.

Thus far in 2011, authorities arrested China Forestry's CEO for embezzlement, the Hong Kong exchange suspended trading and an accounting firm hired to conduct an investigation.  As of March 7, the Hang Seng Index dropped China Forestry.

While China Forestry sank, China floated the biggest ever, private-sector shipping deal, financed by The Carlyle Group to the tune of $5 billion.

The ships will be chartered out on long-term leases to companies like container-shipping line Cosco Group and oil giant Cnooc Ltd.
Is this totalitarian kiss and makeup?   Watch to see if Louis Freeh is involved in the investigation.

Update 3-17-11:  Carlyle co-founder Daniel D'Aniello met with Chinese officials in a sharing of policy views.

Update 3-28-11:   Chinese ship builders gain, according to BulletinPanama.

Update 5-5-11:  WSJ reports Carlyle profited from its investment in China Forestry.  The rest of the story is less than confidence inspiring.  That's using the honest form of confidence.

Saturday, March 12, 2011

Carlyle Group's Social Networking with Gadhafi


Carlyle co-founder David Rubenstein courted Libyan oil money after Colonel Gadhafi established the Libyan Investment Authority (LIA), a sovereign wealth fund currently valued at $60bn-$80bn.  Chronicle Herald reported:

The investment authority was established in 2006, just as Libya, and Gadhafi in particular, were making a concerted attempt to rejoin the community of nations. 

What role did Rubenstein play in legitimizing Gadhafi's efforts in the global financial community?  FT reported:

Carlyle was one of the first to receive money from the fund, in part due to the efforts of its chief, David Rubenstein, who first travelled to Tripoli in 2006.

A year later Seif al-Islam Gaddafi, son of the Libyan leader, flew to the US to meet prominent financial executives. Frank Carlucci, former defence secretary and retired chairman of Carlyle, hosted a dinner for him in a private room at the City Club.
FT makes this dinner sound like it occurred in 2007, the same year Frances Townsend had a bizarre visit to Gadhafi's Tripoli compound on behalf of the White House.  Carlyle hosted a 2008 event at The Washington Club, with diplomats and Carlyle big wigs in attendance.   In 2009 David Rubenstein and fellow PEU Stephen Schwarzman flew to Tripoli for the wedding of LIA's Deputy Chief Executive.

The record of social contact and business deals is clear.  Yet, NPR missed the FT source.   Did they not consider FT credible, as it is 3% owned by the LIA?  NPR pushed Carlyle's obfuscation:

Officials of the politically connected private equity firm The Carlyle Group have had meetings with Libyan officials, including one of Gadhafi's sons. It's not clear whether they ultimately did business. Carlyle's managing director, David Rubenstein, said this week that Moammar Gadhafi himself was not an investor.
Will anyone tweet Rubenstein's line?   Why did he not speak to LIA's stake in Carlyle investments?

Christopher W. Ullman of Carlyle said that the company did not comment on the identity of its investors.
Rubenstein continued his social networking on financial reform.  Carlyle and the PEU trade group spun Congress.  The Doddo Bill hardly touched private equity and completely missed sovereign wealth funds. 

The White House celebrated the bill with Rubenstein.  It was a fairly standard pep rally.  There's little chance the club will use social media.  Code talk works better face to face.

Update 3-13-11:  During his time as President of the African Union 2009-2010, Gadhafi pushed for it to become an economic union, like the European Union or the Gulf Cooperation Council.   FT reported Carlyle will launch a $750 million Africa fund.  This came after a $500 million capital injection from Mubadala Development Authority, a UAE sovereign wealth fund that partners with Carlyle on the Middle East and North Africa.  Oddly, Larry Fink of BlackRock recently noted, "Markets like totalitarian governments."   How will these forces interact?

Friday, March 11, 2011

Carlyle Group Adds R to PEU


The Carlyle Group announced plans to form the largest private equity underwriter (PEU) in Peru.  This came after their partner spilled the beans.  Peru has a rising middle class, something citizens in America and the Middle East would like.

Carlyle's plans to invest in the Middle East remain on track, according to co-founder David Rubenstein..  WSJ reported:

Rubenstein declined to comment on how middle-east investors may react to foreign investment firms in the area in particular those with existing or past links to Western governments.
Hosting that 2008 dinner for Saif Gadhafi at The Washington Club may or may not come back to haunt The Carlyle Group.  How about the Tripoli wedding Rubenstein and fellow PEU Stephen Schwarzman attended in 2009?

Rubenstein spoke at the Super Return conference in Berlin.  He did his impression of Donald Rumsfeld with known "knowns and unknowns:"  Here's his list:

Known positives
1. The economy has rebounded
2. Stock markets have improved
3. The unemployment problem has improved
4. Regulatory constraints are now largely known
5. Press attention has been elsewhere
6. Business communities are now more accepting of private equity
7. Exit opportunities are better
8. Limited partner distributions are coming back
9. Investment pace is increasing
10. Fundraising is picking up slightly and will probably rise
11. Relationships between general partners (buyout firms) and limited partners (investors in buyout funds) have improved since the crisis

Known negatives
1. Price multiples are increasing
2. The general view of private equity is still sub-optimal
3. First time funds are becoming harder to raise
4. Tax issues will continue to be debated

Known unknowns

1. The impact of Middle East turmoil on valuations and opportunities in the emerging markets
2. The effect of social networking on private equity
3. The impact of US government resolution of budget and debt problems
4. The ability of EU banks to deal with their debt problems
5. The ability of the EU to support the euro in light of sovereign debt issues
6. The impact of Middle East uncertainty on oil prices
7. The willingness of sovereign wealth funds and pension funds to remain committed to the private equity model

The general view of private equity is sub-optimal.  Which is why Carlyle calls itself a "global alternative asset manager" and their trade group changed its name, adding "growth capital:".



GAAM, PEU, PERU, PEGCC...

In other news Carlyle finally exited JMC Steel.  A planned 2008 sale to a Russian firm fell through.  Terms were not disclosed.  It's not clear how much federal ERRP funding added to Carlyle's take home.

The following deal added to Carlyle's general creepiness:

DIGIOP Technologies, a developer of video and data management software (VDMS) solutions for the surveillance industry, today announced that an investor group led by The Carlyle Group, a global alternative asset manager, has acquired the Indianapolis-based company.
Carlyle knows how to find the sweet spot. 

Also, the Russians are calling all PEU's, dangling a $10 billion lure.

Power Squared: Albright & Soros


Reuters reported:

A fund affiliated with hedge fund billionaire George Soros and one linked to former U.S. Secretary of State Madeleine Albright are buying a controlling stake in APR Energy, a company that mainly supplies temporary power in developing countries, for $250 million.

Albright Capital Management LLC is an investment firm dedicated to emerging markets, available only to institutional and accredited investors.  It does not offer generally offer investment advice to the public.  Does that apply to any work done for U.S. Treasury?

Despite Albright's eschewing of public markets, it has two subsidiaries registered with the SEC  Albright Multi-Strategy Fund I, L.P. has a minimum investment of $5 million with virtually everything else indefinite.  Albright Securities LLC is a securities broker dealer.  Ernst & Young described Albright Securities:

The Company was formed primarily to serve as the private placement agent in connection. with one or more private funds sponsored by Albright Capital Management.  

Ernst & Young mentioned another fund, the Flagship Multi-Strategy Fund   The most interesting revelation about Albright Securities LLC came under the tax section of the audit:

No provision for federal or state income taxes has been made since the company is not a taxable entity.   
Globalist Madeline Albright shared her motivation in launching an emerging markets fund.  Bloomberg reported:

She got into the business because "she sees a need for investing to create a middle class" in emerging markets.

Why isn't Madeline helping the average investor here at home?

"To be blunt, the access that Madeleine Albright gives (clients) through her global contacts is unprecedented."
Unprecedented like Hurricane Katrina, the BP Oil Spew or Forbes latest billionaire list?  America's middle class plummets while billionaires grow 21%.  It's clear who Madeline is working for.

(Thanks to Economic Policy Journal)