Thursday, June 22, 2017

India PM Modi to Meet with Carlyle's Rubenstein

Daily Mail India reported:

American CEOs expected to meet India PM Narendra Modi on Sunday include Apple's Tim Cook, Walmart's Doug McMillon, Caterpillar's Jim Umpleby, Google's Sundar Pichai and Microsoft's Satya Nadella. 

Among others are Mariott International chief Arne Sorenson, Johnson & Johnson's Alex Gorsky, Mastercard's Ajay Banga, Warburg Pincus's Charles Kaye and Carlyle Group's David Rubenstein. 
PM Modi's visit will take place June 25-26.  The Prime Minister will meet with firms helping India go cashless.  Global leaders serve the corporations, not the people.  Modi is but one.  He's coming to meet with the many.

Monday, June 19, 2017

Milk'em PEU Conference

The father of leveraged buyouts, Michael Milken, hosted his annual conference for 2017.  With the Clinton Global Institute a fond memory billionaires gathered in Beverly Hills to pontificate the best way to get even richer.

The Trump team's former PEUs mingled with their billionaire brethren according to Bloomberg.

This year’s event is a homecoming of sorts for Mnuchin, a former Goldman Sachs Group Inc. partner who later relocated to Los Angeles to invest in banks and films. (PEU - Dune Capital) Commerce Secretary Ross, who made his fortune snatching up and rebuilding distressed businesses, (PEU - Invesco/WL Ross) also slips in easily with the Wall Street who’s-who milling about the Beverly Hills Hilton. Those include PEU Blackstone Group LP billionaires Steve Schwarzman and Tony James, JPMorgan Chase’s Jamie Dimon, Wells Fargo CEO Tim Sloan, hedge-fund billionaire Ken Griffin and billionaire private equity underwriter David Rubenstein of Carlyle Group LP.
I believe the conference theme was "Milk'em in the name of progress and equality."

Sunday, June 18, 2017

PEU Bonderman's Joke About Women

This week's outrage went toward David Bonderman, TPG founder and Uber board member for his comments in an Uber board meeting.  Yahoo Finance reported:

“There’s a lot of data that shows when there’s one woman on the board, it’s much more likely that there will be a second woman on the board,” Arianna Huffington said around six minutes into the recording.

“Actually what it shows is it’s much likely to be more talking,” Uber board member David Bonderman said.

“Oh. Come on, David,” Huffington responded.
Bonderman is one of America's legendary PEU boys.  PEU is an abbreviation for private equity underwriter. Everything is fair game for the self interested greed and leverage boys.  The younger generation seem similarly self interested, including Uber's executives.    

Women cost Bonderman millions when they shopped less at J. Crew.  Have some compassion for the guy.  He's supposed to be going up the billionaires list, not going down.  

Bonderman did apologize and take responsibility for his words.  He resigned from Uber's board that very day.

David Bonderman did not say the last sentence in the image above.  That's my theory, projection, supposition, and/or active imagination.    

But if the shoe fits.........      keep it.  If not, please return using the enclosed label. That may be the greatest lesson history has taught Bonderman regarding capital structure in the retail industry.

Saturday, June 17, 2017

CCC's Failure Tied to Cobalt Energy's Sweetheart Angola Deal for Government Officials?

The Carlyle Group's $1 billion Guernsey lawsuit is yet to be decided.  Several Carlyle chiefs testified last summer in the failure of Carlyle Capital Corporation.  Crown Dependency and British Overseas Political News shared a WSJ piece::

In testimony that provided flashes of Carlyle Group’s rarefied perch in the investment world, Mr. Conway said the Angolan government, CCC’s biggest investor, considered putting $500 million in the fund. The West African country ended up taking a $150 million stake.

Several CCC investors, including former Republican U.S. congressman Michael Huffington and Kuwait’s National Industries Group, later brought lawsuits against Carlyle Group, but only the liquidators’ case made it to trial. The other suits were all thrown out or dropped and are no longer active.

The liquidators were appointed by the Guernsey court in 2008 as part of the island’s insolvency procedures.

After raising $600 million privately in late 2006 and early 2007, CCC prepared to offer shares on Euronext Amsterdam in the summer of 2007. But alarm bells began to sound on U.S. subprime mortgages, and other mortgage-related assets were hit. It was touch and go whether CCC’s initial public offering would go ahead, according to emails shown in court.

CCC’s Fannie Mae and Freddie Mac bonds had fallen in value, and banks wanted more cash and collateral to keep providing loans. CCC borrowed around 30 times its equity to increase returns and had little wiggle room.

“Pulling the deal will be a public black eye,” Mr. Rubenstein wrote in an email to Mr. Conway at the end of June 2007, according to court filings. “On the other hand I’m at a loss to say how the whole market can be wrong about the product at this time and we are right,” he wrote.
After CCC imploded Carlyle asked Michael Huffington for the chance to make his $20 million back and more.   Huffington declined and sued Carlyle for his losses.  Carlyle plead a puffery defense in another equity investor lawsuit (SemGroup).

The information about The Carlyle Group's close ties with Angola's flies in the face of Carlyle's defense regarding Cobalt Energy, which effectively partnered with government officials via subsidiary corporations, Alper Oil and Nazaki Oil and Gas.  An SEC investigation produced nothing.

In light of Carlyle's plea to Huffington to make good his CCC investment, did something similar happen in Angola?  After losing $150 million in Carlyle Capital Corporation any government would be hard pressed to partner with an affiliate of that same firm.   What inducements did Carlyle indirectly offer, if any, to keep Angolan government leaders in their PEU camp?

In 2015 Carlyle affiliate Cobalt Energy sold the Angola offshore fields back to its local partner, minus the shady add on companies.  That chapter is closed but CCC testimony on Carlyle's close ties with the Angolan government makes one wonder what happened between the $150 million debacle and Cobalt's exit of Angolan offshore oil and gas fields.

This story is important as Carlyle co-founder David Rubenstein is the new Chairman of the Board for the Council on Foreign Relations, the Western oriented group of global tamperers and profiteers.  

Friday, June 16, 2017

Chairman Rubenstein: Carlyle Chief Tops Board for CFR

Carlyle Group co-founder David Rubenstein has been named Board Chair for the Council on Foreign Relations, a collection of Western oriented global tamperers.  Rubenstein's role places Carlyle in a prime position to profit from global changes directed by CFR's high powered political stable.   

Mr. Rubenstein replaces two CFR co-chairs, former Treasury Chief and Centerview Counselor Robert Rubin and Carla Hills, member of J.P. Morgan's International Advisory Board and CEO of Hills and Company.

CFR's board elected two Vice Chairs, Jami Miscik and Blair Effron.  Jami Miscik produced faulty WMD intelligence on Saddam Hussein's Iraq and was rewarded with a global risk management position with Lehman Brothers.  That role ended in September 2008 when Lehman Brothers imploded.

After her second monumental failure with Lehman Miscik landed a job with Kissinger Associates, a consulting firm for Western companies interested in global tampering.  She sits on the board of Morgan Stanley and made a fortune when Dell bought EMC in a mega LBO deal worth $60 billion.  Miscik served on EMC's board from August 2012 until deal close. 

Centerview Partners kept a top board slot at CFR by shifting from Bob Rubin to Blair Effron.  The move will allow Centerview to keep their key player role advising global corporations

CFR retains its Western PEU orientation with its new Board officers.  Rest assured private equity underwriters (PEU) are the wrong prescription for our globe. That's all consummate salesman Rubenstein knows how to push.  Watch out globe the PEU push isn't close to over.

Update 6-21-17:  NYT produced the latest puff piece on Mr. Rubenstein.  A former big league news reporter felt differently nearly six years ago.

Wednesday, June 14, 2017

Carlyle's PEU Financial Abuse Puts ManorCare Under

One might expect Healthcare Finance to understand the financial games The Carlyle Group used to put down ManorCare.  These include deal fees, management fees, monetizing real estate and skewing all the rewards to executives and sponsor Carlyle.  It took nearly a decade but ManorCare ceased paying its debt and the company will go to debtholders.  Carlyle's 2007 purchase of ManorCare came with the endorsement of President George W. Bush and Gail Wilensky, former Medicare Chief and ManorCare board member.  Wilensky promised a quality committee would keep Carlyle on the up and up.  That didn't happen.

Two years ago the Department of Justice said it was investigating HCR ManorCare for allegedly exerting pressure on skilled nursing facility administrators and rehabilitation therapists to perform unnecessary services on patients in order to collect additional Medicare and Tricare payment, the DOJ said in 2015. 

Patients were kept in facilities even though they were medically ready to be discharged, the DOJ said.

Skilled nursing facility managers and therapists were threatened with discharge if they did not administer the additional treatments necessary to qualify for the highest Medicare payments, according to the complaint. 
Greed, intimidation are PEU methods.  Healthcare, thanks to Presidents Bush and Obama, is peppered with PEU owned companies.  Who will provide these firms life support after years of toxic sponsor ownership?  Apollo Global Management will own part of ManorCare's carcass, so the company will not be leaving the PEU fold.  That's sad for patients and their families.

Update 6-18-17:  The media continues to soft pedal Carlyle's mismanagement of ManorCare.  The Toledo Blade traditionally has gone deeper into ManorCare as they share a hometown.  The Blade reported "HCR ManorCare has said the leases it signed came at the top of the market."  The leases were intended to enrich ManorCare's sponsor, The Carlyle Group.  Carlyle's sponsorship of ManorCare did the company in. 

Sunday, June 11, 2017

Carlyle to Buy Italian Sweet Supplier

A Carlyle Group press release stated:

Global alternative asset manager The Carlyle Group (NASDAQ: CG) has today announced it has entered into an agreement to acquire the majority shareholding of the Italian company IRCA, a large European manufacturer of ingredients and food products for pastry-making, baking and ice-cream retailing. Carlyle will acquire an 80% shareholding from Ardian and the company’s founding Nobili family, who will continue to manage the company.

Established in 1919, Irca has a prominent position in the artisanal pastry and ice-cream markets, expanding its European presence across France, Germany, Spain and Eastern Europe, renowned for the quality of its product offering, which currently totals nearly 1800 lines. Irca currently distributes its products in approximately 70 countries, through a strong network of long-standing distributors.

Mr Roberto Nobili, member of the fourth generation of entrepreneurs, will continue to retain his role as Irca’s CEO.
It will be interesting to see how the founding family mixes with Carlyle.  The Brintons' family had nothing nice to say about Carlyle and its PEU ways.

Carlyle expects high end desserts to grow.  As the rich get richer does their appetite for sweets grow?  Finally, Carlyle will have an affiliate with the mission "Let them eat cake, with a dollop of ice cream."  Fitting for our PEU world.

Wednesday, June 7, 2017

Carlyle Bags Another CRO

The Carlyle Group and fellow PEU GTCR struck a $922 million deal to buy AMRI, Albany Molecular Research.  Carlyle's latest deal in the pharmacy research space comes after The Carlyle Group sold PPD to Carlyle for $9.05 billion.  Carlyle paid $3.6 billion to buy PPD six years ago.  How many clinical research organizations can a PEU own and how many times?

I'll peruse the SEC filing on the deal for specifics and post any findings.

Update 6-11-17:  Carlyle inked a deal to buy iNova Pharma, another pharmaceutical company that can send business to PPD and AMRI.  

Monday, June 5, 2017

Carlyle in Double Fight Over Sinking ManorCare

The Carlyle Group faces two foes in its efforts to save face on nursing home giant ManorCare.  The external foe is Apollo Global Management's Leon Black.  Black is ready to take over ManorCare as a creditor in bankruptcy proceedings.  Carlyle's reputation is at risk given assurances it gave federal regulators when it bought ManorCare in December 2007.  President George W. Bush, a former board member for Carlyle affiliate CaterAir, supported the deal.

Congress held hearings on the buyout.  A number of former Medicare/Medicare Chiefs supported the deal, including ManorCare board member Gail Wilensky.  No one asked about Carlyle's LifeCare Hospitals failure after Hurricane Katrina which resulted in 25 patient deaths.  Oddly ManorCare is being investigated for poor quality care, including patient deaths, and inappropriate billing.

Beneath the Carlyle-Apollo PEU match lies an internal foe, ManorCare's CEO Paul Ormond.  NY Post reported:

The landlord of America’s second-biggest nursing home chain is haggling with the company’s top executive over a lavish compensation package, even as the chain teeters on the edge of bankruptcy, sources told The Post.

Paul Ormond, CEO of HCR ManorCare, is demanding $100 million in deferred compensation that private equity giant Carlyle Group promised to pay him as part of a $6.3 billion buyout of the company in 2007.
Could Carlyle be that bad to work for, that a CEO would need that kind of pay to stomach working for PEU ilk?  Not likely.  Ormond invited Carlyle in and partnered to make himself stinking rich.  Carlyle expected to make billions more.  After putting ManorCare in a precarious position, Carlyle's founders know better to throw good money after bad.

ManorCare CEO Paul Ormond grossed $198 million from Carlyle's purchase of the company.  Here's the breakdown:

Now Paul wants another $100 million.  The Carlyle Group is free to pay Ormond what he's due.  They won't pay from the sponsor level.  Affiliates pay Carlyle for the privilege of being owned.

Ormond's excessive deferred compensation is a window into private equity practices where the top get outsized rewards while legions of employees struggle as costs from deteriorating benefits eat up more than any pitiful raises PEU boys hand out

Carlyle is ready to walk away from ManorCare's failing financial health.  The cause is PEU ownership.

They have two fights as they ready to hand over the keys.  One has Leon Black ready to back door Carlyle on ManorCare, a move quite familiar to Carlyle chiefs (Brinton's, Mrs. Fields).

The other fight is with the CEO who brought Carlyle in.  Does that make The Carlyle Group a Trojan Horse?

Update 6-13-17:  Carlyle is out of ManorCare according to NYPo.  Ten years of PEU ownership drove it under.

Sunday, June 4, 2017

Carlyle Group Among Hacked OneLogin Customers

HotHardware reported a serious hack on centralized password manager OneLogin:

"We detected unauthorized access to OneLogin data in our US data region," OneLogin disclosed in a blog posting this week.
This initial notice was frustratingly lacking in detail, and customers were left to assume the worst with regards to the severity of the attack. However, OneLogin has since updated its blog posting with more details, including the unfortunate news that hackers were able to gain access to the company's AWS keys.
The hackers were then able to use those keys to "access the AWS API from an intermediate host with another, smaller service provider in the US." The company reports that the intrusion began at 2AM on May 31st, but it wasn't until seven hours later that OneLogin staff detected any anomalies and was able to cut off access. That is a rather lengthy period of time for the "threat actors" to have access to the company's database tables.

OneLogin also provided this rather dour warning:

While we encrypt certain sensitive data at rest, at this time we cannot rule out the possibility that the threat actor also obtained the ability to decrypt data. We are thus erring on the side of caution and recommending actions our customers should take, which we have already communicated to our customers.

Those actions of course include resetting passwords, generating new API keys and creating new security certificates.

It is reported that OneLogin provides services to over 2,000 companies (including Yelp, Midas, Pinterest, Pacific Life, The Carlyle Group, Conde Nast, and Pandora) and has millions of individual users. OneLogin allows users to integrate with services like Amazon Web Services, Office 365 and Google ecosystem.
TechCrunch had a portion of the e-mail sent to customers:
All customers served by our US data center are affected; customer data was compromised, including the ability to decrypt encrypted data.
Carlyle most recent podcast tackled cybersecurity.  Their advice could be timely.  Any egg would come from vendor selection not from direct investment.

OneLogin received funding in three rounds, the first $4.7 million from Charles River Ventures, the second $15 million from Social Capital and Scale Venture Partners funded the last round at $25 million. 

I ran across an interesting story that likely is not related.  IndiaWest reported on May 13, 2017:

Skyhigh Networks named Dheeraj Khanna as VP of technical operations. Khanna joins Skyhigh from OneLogin, where he built a team from the ground up as the VP of technical operations. 
Mr. Khanna's new employer Skyhigh Networks may be in a position to make hay from OneLogin's security failure. 

Carlyle is a OneLogin customer and its IT team is working to keep its data safe.  The question is who used OneLogin at Carlyle?  Possibilities include employees, founders and/or limited partners.  Limited partners do not like surprises, especially those placing their data at risk.

Saturday, June 3, 2017

Bain's Gymboree Misses Interest Payment

News stories highlighted Gymboree's failure to make a required interest payment.  All shared the expectation of bankruptcy.  MarketWatch reported:

Gymboree is another retailer that is saddled with debt taken on in a leveraged buyout. The company was acquired by Mitt Romney’s former firm Bain Capital in 2010 for $1.8 billion. Today, the company has $1.043 billion of debt, split between a $769 million term loan, the $171 million of 9125% senior secured notes due December of 2018, an $80 million ABL revolving credit facility and a $49 million first-lien ABL term loan.

The company’s bonds were last trading at 8.729 cents on the dollar, according to MarketAxess, deep into distressed territory. Its term loan was quoted at 44 cents to 46 cents on the dollar, according to Debtwire.
The report did not say how much Bain siphoned from Gymboree via deal fees, annual management fees and special dividends/distributions.  It did not share whether Bain added Gymboree debt since 2010 to fund a sponsor PEU dividend.

Also, there is no word on credit default swaps Bain may have purchased for risk management purposes.  We'll see if any of this information exists or comes to light.

As of now everything is marked down, including Gymboree's debt.

Friday, June 2, 2017

Carlyle's Rubenstein Returns to Bilderberg

Carlyle Group co-founder David Rubenstein returns to The Bilderberg Group meeting in Chantilly, Virginia.  Carlyle has $100 billion in fundraising to do and a junk bond IPO fund to push, TCG BDC.

Other private equity firms at Bilderberg include KKR, Thiel Capital, Johnson Capital Partners, Ariel Investments, Citadel, Carlyle Group partner Koc Holdings, Evercore, Greylock and Goldman Sachs.

Bob Rubin, Vernon Jordan, Andy Stern and James A. Johnson will be at Bilderberg to relish the millions they've made by integrating the Blue Team with Wall Street and the greed/leverage boys.

Palantir will be at Bilderberg to protect the secret enclave from public scrutiny or accountability.  Trump Commerce Chief Wilbur Ross will attend the meeting.  He and Rubenstein could tell deadly stories of how they failed workers and customers.

Billionaire's don't talk about the little people very often.  Their pocketbooks are more important and they've consistently acted as democratic kingmakers.

Wednesday, May 31, 2017

Carlyle's BDC Files for IPO: 100% Level 3 Assets

Seeking Alpha reported on the looming IPO of Carlyle affiliate TCG BDC, formerly Carlyle GMS Finance, Inc:

TCG BDC has a portfolio of 94 investments in 82 companies with total fair value of $1.39B. Total investment income last year was $111M. It will trade in the Nasdaq under the symbol "CGBD." The IPO size is a placeholder amount of $100M.
The prospectus revealed all of TCG BDC's assets are level 3.

Carlyle is coming off a brutal period in its hedge funds.  Nearly all its hedge fund bets went sour.  Surely, it's time for their luck to turn.  That or it's time to dump pumped up assets onto unsuspecting investors.

Level 3— inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include investments in privately-held entities, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs. 
Carlyle took Carlyle Capital Corporation public in Amsterdam in July 2007.   The highly leveraged fund declared bankruptcy in March 2008 when residential mortgage backed securities imploded.

Time will reveal if this IPO happens and at what price.  This market is hungry for investment and yield.  We will find out how hungry with Carlyle's BDC.

Monday, May 29, 2017

Carlyle's Moroccan Refinery Losses to Turn to Ownership?

Dow Jones reported in November 2016:

A Carlyle Group LP hedge fund has lost the $400 million it invested last year in a Moroccan oil-refinery deal, according to a securities filing and people familiar with the matter.

The hedge fund, known as Vermillion, was to receive a share of revenue at the refinery, which ran into financial trouble and was seized by Moroccan authorities later in 2015, the people said. The refinery, known as Societe Anonyme Marocaine de l’Industrie du Raffinage, or Samir, was put into liquidation this year.

In a note in the Washington, D.C., private-equity firm’s quarterly filing last week, Carlyle said it believes $400 million in petroleum commodities were “misappropriated by third parties outside the U.S.” It didn’t identify the soured deal or name the third parties. The note, which hasn’t previously been reported on, refers to Samir, the people said.
The Carlyle Group sought insurance payment for its investment losses but Mitsui Sumitomo Insurance Underwriting denied the claim, claiming Carlyle's investment was in the form of credit, not insurable assets.  Carlyle is suing the insurance company, not the people who ran the refinery into the ditch.  Simultaneously, Carlyle is teaming with Glencore to buy the refinery and add it to their European energy portfolio.

SAMIR is a public, majority-owned subsidiary of Corral Morocco Holdings AB, which operates in Morocco. Corral Morocco Holdings AB is wholly owned by Corral Morocco Gas & Oil AB, which in turn is wholly owned by Moroncha Holdings Co. Limited (Cyprus).
 The Coral Group obtained 67.27% of SAMIR in 1997.  Reuter's reported:

A Moroccan court ruled last year that Samir should be liquidated despite attempts to restart production by the company, which was controlled by the Corral Petroleum Holdings group of Saudi billionaire Mohammed al-Amoudi.
The Carlyle Group is not suing a Saudi billionaire who stood at the top of the corporate structure that lost Carlyle's $400 million, nor is it suing the ex-Morgan Stanley Vice Chair of Corral and SAMIR.

Carlyle is also not suing SAMIR's CEO or any SAMIR board members for stealing their $400 million.

These four SAMIR executives and board members could be the unnamed third parties who misappropriated Carlyle's oil.  They are the people who threw up their hands after the value of their underlying assets dropped significantly.

The question is how they went down.  Did they pull a Jon Corzine who grabbed funds from MF Global clients to make good on his bad bets?  Was Carlyle's $400 million in oil just too available to SAMIR's top executives?

Did SAMIR roll up the carpet after telling investors how solid things were, as Carlyle did with Carlyle Capital Corporation (CCC) or SemGroup?  Carlyle ran from CCC's stinking corpse after the highly leveraged residential mortgage backed securities fund imploded in March 2008.

Carlyle Capital said on Thursday it has defaulted on $16.6 billion of debt and was unable to reach a deal with lenders.
SemGroup's implosion from bad energy bets cast doubt on Carlyle's management prowess and oversight abilities..

Having failed investors before Carlyle should understand when financial shocks take down a company.  CCC liquidators sued Carlyle for "breach of fiduciary duty, breach of contract, gross negligence and unjust enrichment."  A Dutch billionaire is financially backing the CCC lawsuit against Carlyle.

Carlyle is not suing Sheik Mohamed Al Amoudi, worth an estimated $9.4 billion.  The global billionaire circle is relatively small and Carlyle's co-founders have numerous connections with the Sheik.  The year 2007 saw the Sheik discover $1 billion in gold in Ethiopia (March) and donate $20 million to the Clinton Foundation for HIV/AIDS treatment in Africa

The Carlyle Group hired the Clintons to speak at their annual limited partner investors meeting.  President Bill Clinton spoke in  2012, while Hillary received $200,000 for her 2013 talk at the same event.  Carlyle co-founder David Rubenstein next interviewed Hillary in early 2014. 

Apparently the Clintons learned from their time with Carlyle as their Foundation is a 50% owner of Fondo Acceso, a Colombia private equity underwriter (PEU).  Imitation is the greatest form of flattery.

Carlyle started with Saudi oil money and would not risk alienating it.  What's $400 million among billionaires? The sting diminishes if Carlyle can get insurers to pay up or use the loss to strike a better purchase price for the SAMIR refinery?

Interesting Aside:  The only people flying after 9-11-2001 were Saudis, a few were investors attending The Carlyle Group's annual meeting in Washington, D. C.    A Swiss bank account owned by Sheik Mohamed Al Amoudi funded the 9-11 attackers.

Sunday, May 21, 2017

Blackstone's $100 Billion Infrastructure Plans Dovetail with Trump's

Forbes reported:

Private equity giant Blackstone Group is unveiling a $40 billion infrastructure fund with the gulf nation, which will primarily invest in the United States. Saudi Arabia will commit $20 billion to the Blackstone infrastructure fund and another $20 billion will be raised from other limited partners, readying cash that could lead to $100 billion in total infrastructure investments on a leveraged basis.
I'm sure the American public is comforted by the fact that our future tolls, air travel fees, water bills and other public services will help billionaires and the Saudis profit further.

Saudi Arabia's Public Investment Fund has agreed to commit $20 billion to the Blackstone infrastructure fund, which will be set up a permanent capital vehicle
Recall Saudi citizens flew home when everyone else in America couldn't take a plane after 9-11.  Those Saudi citizens were in Washington, D.C. for the annual Carlyle Group investors meeting.

The Carlyle Group is also interested in infrastructure.  COO Glenn Youngkin told CNBC:

Airports, right out of the box, is the No. 1 target area right now.  They are an understood commercial entity, and there are airports starting to move this way” already. 
Puerto Rico has the only commercial services airport operated under private management according to a Feb. 2016 Congressional report.

Chicago Mayor Rahm Emmanuel cancelled Midway Airport's planned privatization in 2013.  Emmanuel made his post Clinton White House fortune as an investment banker for Wasserstein, Perrella and Company.  Rahm made $18 million in two and a half years.  Emmanuel served Bruce Rauner of GTCR Golder Rauner, a Chicago based private equity underwriter (PEU), according to Dealbook

Instead of private equity, Mr. Rauner advised Mr. Emanuel to pursue investment banking, where his political experience might be more valuable in landing deals in regulated industries.
Mr. Emanuel called him back after starting at Wasserstein and asked if he could take over coverage of GTCR for his new employer.
Rauner is currently the Governor of Illinois.  Both Emmanuel and Rauner are in position to privatize public assets to their PEU peers.

President Trump not only appointed billionaire PEUs to key government posts, he is touring the world intent on giving them the opportunity to get richer.

The partnership comes as top executives, including Blackstone Chief Executive Officer Steve Schwarzman and KKR & Co. co-CEO Henry Kravis, descend on Riyadh for the inaugural Saudi-U.S. CEO Forum, a weekend of deal-making. The meetings, which have already yielded billions of dollars in deals between companies including oil giant Saudi Aramco and General Electric Co., are taking place as U.S. President Donald Trump visits the kingdom.

Infrastructure investing has gained renewed attention as Trump’s administration vows to direct more private money toward improving roads, bridges and airports. 
Trump's infrastructure plan involves more leverage than Blackstone's:

The president's budget proposal, expected to be unveiled next week, will include a call for $200 billion in federal funds over 10 years for infrastructure projects, according to Bloomberg, citing a senior Office of Management and Budget official.

The White House budget blueprint would also provide incentives for at least $800 billion of infrastructure investment by the private sector and state and local governments, the official said.
Private equity hates paying taxes.  We'll see how much Blackstone's $100 billion permanent capital vehicle pays, if anything in taxes.  We might have the Trump PEU infrastructure tax rebate.  If so, the little people will pay and some of that will go to a Saudi investment fund.  It's a flash back to 2007, only that deal was with a United Arab Emirates sovereign wealth fund. 

Carlyle to Lick Fingers on Lily O'Brien

While retailers implode across the globe The Carlyle Group is ready to monetize its investment in specialty chocolate maker Lily O'Brien's.  Irish Times reported:

The Post also reports that chocolate company Lily O’Brien’s is up for sale for €50 million. It says the business, which is majority owned by US-Irish joint venture Carlyle Cardinal Ireland, has hired IBI Corporate Finance to find a buyer. 
The Carlyle Group purchased a majority stake in Lily O'Brien's in January 2014.  BusinessIrish reported in December 2015.

A joint venture between US private equity group Carlyle and Dublin-based Cardinal Capital, Carlyle Cardinal Ireland, acquired a majority stake in Lily O'Brien's (around 80pc) last year for a rumoured €15m.

Asked what an expanded company would be like in five years, Mr Donnelly said he would like to see the business heading towards the "magic number" of €50m
Might Carlyle work their magic and get €50m sooner than planned?

Aside:  Carlyle had $185 billion in assets under management when it invested in Lily O'Brien's.  At last report AUM stood at $162 billion. 

Saturday, May 20, 2017

Healthcare Experts Fooled on ManorCare Ownership

In a sad sign of the times a respected media publication cannot decipher the complex legal and investment relationships for firms intent on making a fortune in healthcare.  Modern Healthcare could not get The Carlyle Group, a politically connected private equity underwriter, owns Manorcare, an owner and operator of nursing homes in the U.S.

Carlyle Partners V purchased the company in 2007 for $6.3 billion.  It later sold the nursing home buildings to HCP for $6.1 billion and entered into an agreement to lease them back.  HCP is a real estate investment trust.  Carlyle still owns HCR Manorcare, the operator of nursing homes   

There is a lawsuit against HCP by shareholders upset that HCP entered into a bad deal with Carlyle.  The Carlyle Group charges Manorcare annual management fees to direct corporate strategy and deal fees to undertake the $6.1 billion sale of nursing home real estate to HCP.

Between a decade of management fees, deal fees, special dividends/distributions and proceeds from the HCP sale Carlyle has already made money on ManorCare. 

Modern Healthcare erroneously reported:
Real estate investment trust HCP has been sued for allegedly hiding Medicare kickback allegations against its skilled-nursing provider ManorCare from investors.

In a proposed class action lawsuit filed in an Ohio federal court Monday, HCP shareholder Scott Weldon accused the Irvine, Calif.-based company of violating the Securities Exchange Act by hiding from investors that ManorCare, an HCP-acquired skilled nursing facility operator, was repeatedly accused of fraudulently billing Medicare for more than $6 billion.

Before it was acquired by HCP in 2011, ManorCare was sued three times for insurance fraud. The Department of Justice joined the suits in 2015 after it investigated the company. That information was not disclosed to shareholders, the suit alleges. 
ManorCare operates 281 skilled nursing facilities in 30 states..
The nursing home operator is owned by The Carlyle Group, not HCP.

HCP was effusive in their praise for the ManorCare real estate deal, calling it a high quality transaction with best in class management team.  That was before things went south.

HCP shareholders are suing because their company did not disclose or act on critical information in a major deal, which has since gone bad.

HCP tried to isolate the asset by spinning it off into a separate publicly traded vehicle.  It spun off the ManorCare facility portfolio into Quality Care Properties (QCP) in October 2016.

QCP's recent 10-Q cited ManorCare's getting a "going concern" qualification from public accountants.  It also stated:

On April 5, 2017, the Company entered into a forbearance agreement (the "Agreement") with HCR III and HCRMC (together, "HCR ManorCare"). Among other things, the Agreement requires HCR ManorCare to make cash rent payments of $32 million for each of April, May and June of 2017, with a deferral of payment of the additional $7.5 million per month otherwise due until the earlier of (i) July 5, 2017 and (ii) an early termination of the Agreement, with all deferred amounts becoming immediately due and payable upon an early termination. The Agreement also required HCR ManorCare to deliver its 2016 audited financial statements and auditor consent to QCP not later than April 10, 2017, which were received on April 10, 2017 and included a "going concern" exception for HCR ManorCare in the auditor opinion.

During the term of the Agreement, which will end on July 5, 2017, unless earlier terminated, QCP and HCR ManorCare intend to engage in good faith discussions concerning a long-term restructuring of the terms of the master lease, the guaranty of the master lease and certain other matters. To facilitate the exploration of restructuring alternatives, QCP also agreed to provide HCR ManorCare with a temporary secured extension of credit of up to $7 million per month during each of April, May and June of 2017 (up to $21 million in the aggregate), which would be due and payable in full not later than December 31, 2017, subject to acceleration upon certain events.

HCR ManorCare made the reduced cash rent payments of $32 million for each of April and May of 2017. HCR ManorCare borrowed $7 million for April 2017 under the temporary secured credit agreement.
Oddly, The Carlyle Group is never mentioned in articles about ManorCare's financial turmoil, nor is it identified as ManorCare's owner in QCP's SEC documents. Carlyle is skilled in keeping their good name

Update 6-5-17:  Modern Healthcare editor did not reply to the e-mail I sent informing them of this error.  Neither did they add a correction to the piece.

Wednesday, May 17, 2017

ManorCare to Renege on Lease?

Senior Housing News reported:

ManorCare management “plans to request a waiver from its lenders regarding expected areas of non-compliance with the terms of the credit agreement and to continue good faith discussions with the lessor concerning a long-term restructuring of the master lease.” 
Carlyle paid $6.3 billion for ManorCare in late 2007.  ManorCare sold its real estate for $6.1 billion in 2011, so one might think there would be plenty of cash to pay leases.  Not so. 

Earlier this month, QCP entered into a forbearance agreement with HCR III Healthcare, LLC and its parent company HCR ManorCare, Inc.

The Agreement also requires HCR ManorCare to deliver its 2016 audited financial statements and auditor consent to QCP not later than April 10, 2017, which is expected to include a "going concern" exception for HCR ManorCare in the auditor opinion. 
The question is what happened to the $6.1 billion. How much did Carlyle siphon off in special dividends and management fees during its ownership of ManorCare?

ManorCare's promised quality committee fell down on the job, given the company's quality problems.  That should have been no surprise if government officials looked at LifeCare Hospitals, another Carlyle Group affiliate.

WSJ reported last week Carlyle hired restructuring advisors for ManorCare.  Will bondholders try to claw back Carlyle's massive ManorCare withdrawals? 

Sunday, May 14, 2017

Will Jared Kushner's Cadre Holdings Thrive Over Time?

The Real Deal reported:

When filling out his government disclosure forms, Jared Kushner omitted a few things, including his stake in a real estate tech company and at least $1 billion in loans.

The president’s son-in-law and senior advisor didn’t disclose his stake in Cadre, a tech startup he co-founded with his brother and Ryan Williams in 2014, or loans totaling at least $1 billion from 20 different lenders to properties and companies co-owned by Kushner, the Wall Street Journal reported.  (5-2-2017)
New York Post reported:

Cadre is an online investment portal co-founded by CEO Ryan Williams, who has had stints at Blackstone and Goldman Sachs. Thrive Capital’s Joshua Kushner and his brother, real estate developer Jared Kushner, are backers and strategic advisers.
Business Insider reported:

Joshua Kushner is also the cofounder of health insurance startup Oscar and runs a startup investment firm, Thrive Capital. His brother Jared Kushner, who owns the New York Observer and runs his family's real estate business Kushner Properties, is the third Cadre co-founder.
Prior the election of father-in-law President Donald Trump Jared Kushner was General Partner of Thrive Capital,  a private equity underwriter (PEU).

Thrive Capital invested in Cadre's Series A financing of $18.3 million.

An attorney for Kushner noted that a revised version of his disclosure forms includes his stake in Cadre. According to the papers filed with the Financial Industry Regulatory Authority, Kushner holding company JCK Cadre LLC, owns 25 to 50 percent of Quadro Partners, Inc., which owns at least 75 percent of RealCadre LLC, which operates Cadre. 
The attorney omitted any stake Kushner might have in Cadre via Thrive Capital.

Residual stakes in private equity affiliates are potential conflicts of interest.  Obama Health Reformer Nancy-Ann Deparle never declared her residual stakes from CCMP Capital Partners, a :J.P. Morgan private equity underwriter.  Payouts came during her public service despite having disposed of "all conflicting assets."

Kushner's General Partner role with Thrive is more significant than Deparle's Managing Director position with CCMP.  How much does Jared hold in residual stakes for Thrive's many investments?

Kusher's attorney is Jamie Gorelick, who was personally enriched during a period of fraudulent Fannie Mae accounting and collaborated with the White House to minimize BP's liability for the Gulf Oil Spew.

Kushner has reduced his Cadre ownership stake to less than 25 percent, Kushner’s attorney Jamie Gorelick told the Journal.
Jame did risk management for BP and is now doing the same for Jared Kushner.  I'm sure she will be rewarded for her shepherding Jared.

Update 6-3-17:  Kushner took federal financing for low income areas to build a luxury high rise across from Manhattan waterfront.  He's now in a position to steer more federal funding to Trump's billionaire PEU friends.

Saturday, May 13, 2017

China Trade Deal to Fuel Carlyle Group's LNG Assets

U.S. Commerce Secretary Wilbur Ross announced a China trade deal that could benefit his fellow billionaire private equity underwriting (PEU) brethren.  Chicago Tribune reported:

The United States would also allow U.S. companies to ship liquefied natural gas to China as part of the bilateral agreement reached following President Donald Trump's meeting with Chinese President Xi Jinping in April.
The Carlyle Group has at least two affiliates in the LNG space.  4Gas had this to say on the company's website:

4Gas is the world’s only independent LNG-terminaling company with a global reach. Our objective is to establish a terminal network that will play a crucial role in fulfilling the increasing needs of countries and companies for access to natural gas and that will provide LNG producers access to multiple markets on a global scale. The company is developing terminals in continental Europe, North America and Asia.  
The day before the Trump administration announced the China-U.S. trade deal Carlyle had its own LNG newsPEHub reported Carlyle affiliate Neptune Energy will buy oil/gas assets from a French company:

The EPI business that would be acquired by Neptune includes significant North Sea operations in Norway, including operatorship of the Gjøa field, in the Netherlands where EPI is the #1 offshore operator and the UK, with operatorship of the recently commissioned Cygnus gas field, as well as onshore Germany, and the Jangkrik LNG project in Indonesia. In all, EPI operates some sixty producing oil and gas fields. It also includes the large Touat gas development underway in Algeria, where ENGIE would retain a substantial interest alongside Neptune. 
Law360 reported

“Engie remains a major gas player in Algeria through its LNG activity, and Engie’s experience in Algeria is considered key to bring the first gas to the Touat project.” 
Carlyle inked a deal on LNG assets in Southeast Asia the day before the Trump team opened doors into China.  That's timing!  Carlyle co-founder David Rubenstein should thank President Trump the next time they meet at Mar-a-Lago.
President Trump and Commerce Secretary Wilbur Ross want to help more than Carlyle's founding billionaires.  Trump Advisor Stephen Schwarzman can win as well.  Schwarzman's Blackstone Group is also in the LNG business.  Yes, under President Trump the rich can get much richer.

Update 5-17-17:  ZeroHedge ran an OilPrice piece on a coming LNG boom.

Update 5-21-17:  Alaskan LNG has historically been exported to Asia and Alaska Governor Bill Walker has big plans for LNG.  With BP, ConocoPhillips and ExxonMobil dropping out Walker needs a new developer for the $45 billion project.  Walker petitioned President Donald Trump for $40 billion in federal loan guarantees.  Will Carlyle enter the Alaska LNG picture and help Governor Walker and President Trump get a big infrastructure win?  Watch the news.  Chess pieces are being moved for LNG to boom in Alaska.

Monday, May 8, 2017

Red Team to Fold Up SEC's PEU Review

AltAssets reported:

The Financial Choice Act, a Republican proposal to reform the financial regulatory system, would see the SEC switch its “scarce resources” away from private equity in favour of protecting retail investors.

It states that “although private equity funds did not cause nor contribute to the financial crisis, Dodd-Frank imposes burdensome requirements on advisers to private equity funds, which unnecessarily punishes their investors and impedes job creation”.
At least one private equity investment contributed to the financial crisis.  Carlyle Capital Corporation (CCC) imploded in March 2008, six months before Lehman Brothers fell.  The Carlyle Group birthed and nurtured Carlyle Capital Corporation, a highly levered "safe" bet on mortgage backed securities.  Carlyle turned its back on CCC, claiming no role or responsibility for it's huge failure.

The burdensome requirement the SEC placed on private equity underwriters is that they charge their stated investment fees and no more.  SEC's Andrew Bowden talked tough on PEU fee dalliances but softened his stance under the prospect of private equity employment for his son.   

The Trump team wants to do one better than Obama's private equity regulator who kicked sand before running away.   Trump's Treasury wants to fold up the PEU review tent, no surprise since the President scattered private equity underwriters among his cabinet picks.

High leverage, poorly collatoralized loans and credit seizure can begin in any asset class and spread like wildfire.  Private equity is at higher risk for participating in the next crisis given deal multiples, the need to rollover affiliate deal financing at regular intervals and their wide freedom to value holdings at something other than mark to market. 

President Trump;s team can service his PEU friends but that doesn't make the world a safer place.  It returns us to conditions in place before September 2008.

Sunday, May 7, 2017

PEU Employs Millions of People (for Now)

Financial Review reported:

What are the biggest private sector employers in America today? If you toss that question to most voters or politicians they would probably point to some iconic corporate names: Walmart, say, General Electric, IBM or Citigroup.

But according to Michael Milken, the junk-bond-king-turned-philanthropist, the answers are mostly wrong. Mr Milken last week delivered a speech at the annual conference that bears his name, and produced a list of America's top 10 private sector employers.

Walmart tops this list. But the next eight - yes eight - largest employers, according to Milken data, are private equity groups
Private equity exploded during the Bush-Obama years.

The Carlyle Group and KKR, for example, are each estimated to employ about 700,000 people in their portfolio companies, which probably ranks them just below Walmart. 

Blackstone has "around 600,000" employees, as Steve Schwarzman, its founder, told the Milken event. 

Apollo, another private equity group, has 300,000 workers in its portfolio companies, and Warburg Pincus, General Atlantic and TPG are only slightly smaller

Lobby groups estimate that private equity firms now employ 11 million people inside America (the data are not very transparent).
Private equity underwriters (PEU) turned employment into a low wage, no raise, deteriorating benefit environment.  PEU Mavens like Carlyle co-founder David Rubenstein promote artificial intelligence as a way to reduce employment and further enrich the billionaire class.

Financial Review is clearly aware of private equity practices:

Is it time for voters and politicians to demand that private equity groups come out of the shadows and contribute more to public policy debates? Until now, they have generally refused to do so. That is partly because of a secretive culture, but also due to their ruthless focus on efficiency and profit; these are entities better known for cutting jobs, not talking about social cohesion.
PEUReport communicated with a former business reporter in 2011.  They wrote:

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.
The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.
The greed and leverage boys are now America's largest employers.  That's the Faustian bargain elected officials struck long ago.  Both Red and Blue White Houses proudly hosted PEU founders.  Congress kept PEU preferred taxation low for over a decade when a majority of Americans felt this practice unfair.

Private equity employs business practices that optimize sponsor profits, often at the direct expense of workers.  President Trump plans to enrich the billionaire boys further with super preferred pass through entity taxation.  They'll pocket whatever break Uncle Sam provides.

Workers will get the same raw deal they've had, crumbs at the foot of the PEU table. Since workers have crumbs might they want what's served on plates at the PEU partners' table?  Was Micheal Milken setting the stage for private equity to claim their right to invest on behalf of their millions of workers' 401(k) accounts?  If so, he's a good stooge.

Trump Team Can't See Fraud

Donald Trump appointed former Morgan Stanley Managing Director Craig S. Phillips to reform Fannie Mae and Freddie Mac, government sponsored entities charged with advancing home ownership.  Phillips headed Morgan Stanley's mortgage backed securities division as Global Head of Securitized Products.

Morgan Stanley ended up having to pay $625 million apiece to Fannie and Freddie to settle securities fraud charges in that case. 
In March 2007 Phillips founded Ptarmigan Capital, an opportunistic real estate private equity underwriter focused on India and the U.S.   In May 2008 BlackRock hired Phillips to head its Financial Markets Advisory Group.

In the past year alone, we have advised on or managed distressed portfolios totaling more than $150 billion, some of which have been highly publicized mandates. 
Craig Phillips helped create distressed portfolios during his securitized products term at Morgan Stanley.  BlackRock referred to Phillips:

"as a leader in the development of the securitized debt markets."
Is another crisis in the making and Phillips needed to shovel public money to cover the errors of his fraudster friends?

President Obama ditched fraud as something for the Justice Department to pursue, which left Phillips free for public service. 

Getting away with fraud is the badge of dishonor and apparently a useful skill to President Trump, who has trillions in federal money to steer to his billionaire friends.  He needs people who can funnel the money by any means.  Phillips knows how to shovel money into his and his friends pockets.  This is but the latest Trump appointment deepening the swamp. 

Interesting Aside:  Phillips will work with former Morgan Stanley Global Treasurer Celeste Brown, who was hired as Fannie Mae's Deputy Chief Financial Officer.  This smells like another once in a lifetime opportunity for Fannie Mae management.  I wonder how Craig's reform work intersected with Celeste Brown's decision to join Fannie. 

Saturday, May 6, 2017

Body Shop to Go PEU

Dame Anita Roddick started The Body Shop in 1976.  By the mid 1990's Roddick was well known as a maverick leader. Consider these Roddick quotes:

Over the past decade... while many businesses have pursued what I call 'business as usual,' I have been part of a different, smaller business movement, one that tried to put idealism back on the agenda.

Years ago nobody was elected on the economic ticket. It was either the education platform, or it was health or it was other issues. It is only recently that economic values have superceded every other human value.

I am still looking for the modern equivalent of those Quakers who ran successful businesses, made money because they offered honest products and treated their people decently... This business creed, sadly, seems long forgotten.

At The Body Shop we had always been measured by how many jobs we had created, and I got a major award from the Queen on that.

If I can't do something for the public good, what the hell am I doing?
L'Oreal purchased The Body Shop in 2006  and is ready to unload the company. Private equity underwriters (PEU) lined up to bid on The Body Shop.  Reuters reported Bain Capital, CVC, Advent and BC Partners intended to make an offer.

Anita Roddick died from a brain hemorrhage in 2007.  I imagine Dame Roddick in heaven appalled of the prospect of corporate flippers working their dastardly deeds on her company and its 22,000 employees. 

I believe in businesses where you engage in creative thinking, and where you form some of your deepest relationships. If it isn't about the production of the human spirit, we are in big trouble
Private equity crushes the human spirit, values money over people, and puts returns for billionaires over the public good.  There's big trouble ahead for a PEU owned Body Shop.