Saturday, September 21, 2019

Carlyle to Sell Golden Goose in Cash Raise?

Bloomberg reported:

The Carlyle Group is considering a sale of Golden Goose, the Italian luxury sneaker brand favored by celebrities from Selena Gomez to Taylor Swift, people with knowledge of the matter said.
I doubt Taylor Swift wears Golden Goose after Carlyle funded Scooter Borchetta's buyout of Swift's music library.   The Carlyle Group funded Scooter.  Swift was saddened and grossed out from Carlyle's nightmarish deal.

If Swift made the connection I would hope she donated her Golden Goose sneakers and any Supreme merchandise from their PEU taint.

Bloomberg added:
The private equity firm is working with Bank of America Corp. on the potential deal, according to the people, who asked not to be identified because the information is private. Golden Goose, known for its vintage style footwear emblazoned with the brand’s iconic star on the side, could fetch more than 1 billion euros ($1.1 billion), the people said.

Carlyle acquired Golden Goose from Ergon Capital Partners SA in 2017. The deal valued the business at about 400 million euros.
While other retailers declare bankruptcy left and right Carlyle's GGDB rose nearly 200%?  It's clearly time to cash in before valuations snap in the other direction (like WeWork).

Tuesday, September 17, 2019

Carlyle's Acosta to Restructure $2.7 Billion in Debt?

WSJ reported:

Acosta Inc. has hired law firm Kirkland + Ellis LLP to advise on talks to restructure some $2.7 billion in debt as the struggling marketing-services company faces a looming interest payment, according to people familiar with the matter.
The Carlyle Group bought Acosta in 2014 in a $4.8 billion deal.  Carlyle has $75 billion in dry powder to invest but it never throws good money after bad. 

Reuters reported Acosta's debt as highly leveraged and a potential concern for regulators in 2015.

Moody’s Investors Service puts leverage higher at more than 8.0 times.
S + P lowered its rating on Acosta debt in February:

The downgrade reflects the increased potential for a distressed exchange after the recent amendment to Acosta's credit agreement. While the company temporarily extended the majority of the commitments on its revolver by six months to March 26, 2020, the extending lenders reduced their total commitments by 5% and increased their pricing by 100 basis points. This will likely lead to further pressure on the company's already weakening cash flow. In addition, liquidity could become more constrained after a minority group of lenders chose not to extend their commitments beyond September 2019. 
It's September and at least one distressed exchange is in the works.  Sequa Corporation is another distressed Carlyle affiliate (based on 6-20-2019 debt rating).

Carlyle lost Carlyle Capital Corporation six months before the 2008 financial crisis.  It was massively leveraged and imploded when underlying asset quality deteriorated. 

Monday, September 16, 2019

Harold Hamm Said PEU Model is Broken

Continental Resources CEO Harold Hamm talked about private equity in the oil field on Bloomberg:

"There is consolidation going on.  All the money that came in from private equity.  Basically their model was to buy acreage and flip it to someone else.  So they were big competition in the plays that we did/developed.  That model is broken.  The private equities are in trouble and some of the publics."
Six weeks ago Bloomberg ran a story on private equity underwriters (PEU) buying pipelines at premium prices (15x earnings).  Two firms mentioned in the piece were Energy Transfer and SemGroup. 

Energy Transfer announced it would buy SemGroup in a $5 billion deal.  That is a month after Bloomberg reported:

Meanwhile, SemGroup Corp., which recently hired an adviser to look at joint ventures, saw its shares jump on Wednesday after a report by Reorg M&A that the company is evaluating takeover interest from at least one private equity consortium.
In 2008 SemGroup declared bankruptcy under Carlyle Group ownership after $3.2 billion in bad energy bets.  The implosion came a year after Carlyle Capital Corporation crashed.  Former FBI Director Louis Freeh investigated SemGroup's demise and his report revealed Carlyle pulled enough cash from SemGroup to cover it's initial investment.

An Energy Transfer subsidiary owned Philadelphia Energy Solutions alongside The Carlyle Group.  Their refinery exploded in June and permanently closed after a massive fire.

Philadelphia residents may not be fans of private equity as thousands of jobs will be lost at Philadelphia Energy Solutions (1,000) and Hahnemann University Hospital (2,500).  It took PEU Paladin eighteen months to run Hahnemann, a safety net hospital, into the ground.  Not included in the bankruptcy filing were significant real estate assets in downtown Philadelphia. 

The Carlyle Group's ManorCare, a giant nursing home company, declared bankruptcy after eleven years of PEU ownership.  Carlyle sold ManorCare's facilities for $6.1 billion to a healthcare REIT in 2011.  Carlyle's financial manipulations put ManorCare under.

Where else is the PEU model broken?  Possibly healthcare.  I'd say so.

Wednesday, September 11, 2019

UVA Health System Under Microscope for Greed

University of Virginia Health System CEO Pamela Sutton-Wallace announced she will leave her position for a COO slot with New York Presbyterian Hospital.   UVA received intense scrutiny over its collection practices.  WaPo reported:

Over six years ending in June 2018, the health system and its doctors sued former patients more than 36,000 times for over $106 million, seizing wages and bank accounts, putting liens on property and homes and forcing families into bankruptcy.
It's called aggressive revenue cycle management.  The University Medical Center has to justify its nonprofit status and a challenge would seem in order.

Unpaid medical bills are a leading cause of personal debt and bankruptcy, with hospitals from Memphis to Baltimore criticized for their role in pushing families over the financial edge. But UVA Health System stands out for the scope of its collection efforts and how persistently it goes after payment, pursuing poor as well as middle-class patients for almost all they’re worth, according to court records, hospital documents and interviews with hospital officials and dozens of patients.
Early in her career at Duke University Sutton-Wallace said:

"I am creating systems where I am having an impact on the communities that I serve."
For some served by UVA Health System the impact has been traumatic and horrific. It's not clear if collections were included in the measures determining her bonus, but extrinsic motivators could have contributed to the last four years of the study period under CEO Sutton-Wallace.  The CEO has a $750,000 annual salary with bonus potential to reach $1 million.

Greed has infected our healthcare system and it is causing real harm to individuals and families.

Friday, September 6, 2019

PEU Pete for President

The Late Show hosted presidential candidate Pete Buttigieg.  The candidate said:

If you start the clock in the early '80s when I was born, that's about the time that alot of things slowed down or stopped in this country from wage growth for most Americans to progress in alot of issues of equity...

Pete was born in the same decade as many private equity underwriters, which donated significant sums to the Buttigieg campaign.

The greed and leverage boys are betting on Buttigieg.  They will make numerous wagers such that their political influence remains outsized. 

Thursday, September 5, 2019

PEU Backed Physician Companies Behind Surprise Medical Billing

KKR's Envision and Blackstone's TeamHealth, huge physician companies, are behind surprise medical bills.   The Hill reported in May:

Patients hate surprise medical bills, but they are very profitable for the private equity owners of companies like EmCare (now called Envision) and TeamHealth. Fixing this problem may be more difficult than the White House imagines.
Legislation to address this significant problem faces stiff opposition.  The Hill reported today:

The surprise billing measure has support from bipartisan committee leaders in both the House and Senate, patient advocates and insurers — and was moving forward quickly before Congress left town for August. It was seen as one of the most promising avenues for lawmakers to target health costs this year.

But those efforts are stalling amid a fierce lobbying blitz and political pressures as the 2020 elections nears.

Doctors groups are running millions of dollars in ads against the effort.
Doctor Patient Unity has spent at least $10 million opposing legislation to reign in surprise medical bills.  The group does not disclose its donors.

TeamHealth's PEU owner Blackstone spent over $12.7 million in soft money (outside spending groups) for the 2018 elections cycle.   Envision's sponsor KKR historically gave more to Republicans, but increased donations to the Blue team during Clinton and Obama's successful Presidential runs.  

Blackstone's Stephen Schwarzman and KKR's Henry Kravis can pick up the phone and reach President Trump and most Congressional representatives.  There is no way the common person is lobbying for surprise medical bills, which only add to America's greatest stressor, money.

If Congress cannot address an opaque healthcare system that allows patients to be gouged then my longtime saying remains true.  Politicians Red and Blue love PEU.

Update 9-11-19:  One meme for not eliminating surprise medical bill gouging has politicians giving empathy to PEU companies that need to pay back their bond/debt obligations.  ""What we've seen (from industry) is, 'First, protect me financially.'"  A Daily Beast story on this issue reveals how widespread the PEU virus is in today's world.

Tuesday, September 3, 2019


Seeking Alpha reported:

Carlyle Group agrees to take a majority stake in HireVue, a provider of AI-driven talent assessment and video interviewing solutions.
Hirevue's website describes the company:

HireVue is transforming the way companies discover, hire and develop the best talent by combining the power of video, games and AI for better hiring decisions. The HireVue Assessments and Video Interviewing Platform uses a ground-breaking combination of industrial/organizational science and rigorously tested, predictive artificial intelligence to help customers find and engage higher quality talent, faster.
My healthcare employer used artificial intelligence to predict patient decline.  Our experienced nurses laughed at the number produced by the company's complex algorithm.  Our doctors shook their heads over the need to reduce a patient's myriad of disease processes into a single score and pretend it meant more than the eye of a good nurse or the consensus of a healthcare team.  The company never asked our physicians for any kind of input, even though they had decades of experience. 

Human Resources morphed into human neglect as virtually every function was contacted out to a vendor.  HR served executives not employees.  Strategic HR existed to implement the will of our new private equity owners.  They fired critical staff to meet financial targets.  Customer service became abysmal.  Nobody cared, not even our well insulated compliance department. 

Video, games and AI will do nothing to hire experienced clinicians.  But it may ensure fans of private equity get ranked higher.

I cannot think of a more evil combination, the merging of algorithms with the greed and leverage boys.  Algorithms blew up Wall Street.  I'm sure they and private equity can make any workplace a living hell.

Thursday, August 29, 2019

PEU Purpose of a Corporation

The Business Roundtable released an overarching purpose of a corporation, intended to soften  the several decade old myth that capitalism solves all societal problems.  Workers experienced income erosion as captains of industry personally took every piece of the growing economic pie.  The statement included language to counter this longtime phenomena.

Three private equity underwriters (PEU) inked their signature, representing The Carlyle Group, Silver Lake and Vista Equity Partners.  The greed and leverage boys symbolize the worst of management and their ilk has exploded in the new millennium.  Many were founded in the 1980's and 90's but their impact has been widely felt under the Presidencies of George W. Bush, Barack H. Obama and Donald J. Trump.

Wall Street, the original greed and leverage boys, is well represented on the Business Roundtable statement, as are the accounting firms that enabled off balance sheet obligations.

Paying taxes was not listed as a corporate responsibility.  Many companies that paid no federal income taxes in 2018 were signatories to the Business Roundtable statement.

I smell a public relations effort to spin corporations as worthy of government bailout money should the economy tank.  I've been wrong before and will be again but my nose if often accurate.

Update 9-1-19:   The last year under a healthcare PEU affiliate punched huge holes in the Business Roundtable's narrative.  Employees were treated badly and customer service significantly eroded. 

Update 9-5-19:   Big Four accounting firms sold their standards to the greed and leverage boys and paid a pittance for bad audits.  808 defective audits turned into a mere 18 enforcement actions

Wednesday, August 28, 2019

PEU Rahm Says Democrats Fall in Love

Stephen Colbert hosted former private equity underwriter (PEU) Rahm Emanuel on The Late Show.  The pair talked about the Democratic Debates.  Rahm said Republicans fall in line while Democrats fall in love.

PEU Wasserstein Peralla freed Rahm to talk love by paying him $18 million in Emanuel's first Wall Street gig.  Emanuel recently joined former Treasury Secretary and Glass-Steagall destroyer Bob Rubin at Centerview Partners.  Centerview advised many PEUs on buyout deals.

As President Obama's Chief of Staff Rahm catered to the PEU class.  He dined with Carlyle Group co-founder David Rubenstein at the Blue Duck Tavern.  Carlyle was Emanuel's 16th biggest donor for his 2008 Congressional campaign.

Rahm's new employer Centerview advised Carlyle on a number of deals.

Centerview advised Energy Future Holdings, one of the largest PEU failures in history.

Rahm's appearance on The Late Show came after host Stephen Colbert imitated Presidential Candidate Bernie Sanders.

Oddly, the billionaire class is who Rahm Emanuel serves.  That wasn't the topic of Colbert's interview.  It was the subject of guests the evening before.

The pair posted a graphic to highlight their concern:

Complex organizational relationships exist in the PEU world between affiliate and sponsor.  Below is an image from Energy Future Holdings' bankruptcy filing.

Democrats fell in love with money and power under Presidents Bill Clinton and Barack Obama.  Both catered to the PEU class as did Rahm Emanuel.

Press hating Emanuel will have a media platform courtesy of The Atlantic.  Watch for the bear hug and pivot toward what the greed and leverage boys desire.   That's Democratic love in action.  

Sunday, August 18, 2019

All in PEU Family

Carlyle Group co-founder David Rubenstein's raised his children to be private equity underwriters (PEU).  Daughter Elle Rubenstein founded Manna Tree Partners, after co-founding Pt Capital with her mother Alice Rogoff Rubenstein.

Elle was 25 when she co-founded Pt Capital.  Sister Alexa works for Declaration Partners, manager of the Rubenstein family fortune.

Manna Tree Partners invests in healthy food companies, often taking a minority stake.  Vital Foods, Manna Tree's first investment, is an ethical producer of eggs and butter.  Bloomberg reported:

Carlyle by itself is not the kind of firm we would look to,” said Matt O’Hayer, who started Vital Farms in 2007. “Mission is really important to us. Ellie was really focused on good-for-you foods and sustainable agriculture, all the things we are about, and that made a big difference.”
Yet, father and Carlyle Group co-founder David Rubenstein owns 10% of Manna Tree Partners.  Ex-wife and mother of his children Alice Rogoff said all Rubenstein cares about is money.  Also, David Rubenstein expects huge returns on any equity stake.

Rubenstein jokes about missing Facebook and Amazon.  Through Manna Tree he can profit handsomely off plant based food, a target for his daughter's new PEU.

Even though most healthy food founders won't sell to Carlyle, they're willing to sell to Carlyle's daughter. Sounds like a bad movie.

Friday, August 16, 2019

Milken Publishes Reinhardt Chapter on Healthcare Costs

Milken Institute excerpted a chapter from Princeton Professor Uwe Reinhardt's posthumously published book, Priced Out: The Economic and Ethical Costs of American Health Care.  In 2013 Reinhardt said:

“Our hospitals spend twice as much on administration as any hospital anywhere in the world."
Reinhardt profited from excessive administrative costs via his stock ownership in Triad Hospitals, an operator of for-profit hospitals.

He received just over $2 million for his Triad shares.  Five years later Uwe got another $2 million from his Amerigroup shares

Reinhardt served on other for-profit healthcare corporate boards, including healthcare investment advisor Tekla. The Princeton professor profited handsomely from America's administrative cost heavy healthcare system.  That should be kept in mind as his work is considered. 

Thursday, August 15, 2019

CBS This Morning Offers PEU Rubenstein as Salve

The media called upon Carlyle Group co-founder David Rubenstein to calm investor fears the day after an 800 point fall in the Dow Industrial average.  CBS This Morning interviewed private equity underwriter (PEU) Rubenstein.

The greed and leverage boys loaded affiliates with huge debt, some of which fundied sponsor dividends.  PEU ownership causes 10 times greater bankruptcies over the decade long study period.

I've experienced PEU ownership again this last year.  Our greedy owners slashed staffing, cut benefits and eliminated many unique services that our customers appreciated.

Not one anchor challenged Rubenstein as a perpetrator of financial pain or a contributor to a looming recession  Carlyle Capital Corporation packaged mortgage backed securities and sold the investment as safe.  Debt loaded CCC was the canary in the coal mine for the Fall 2008 Financial Crisis.  Rubenstein's firm loaded CCC had 32:1 debt to equity.

Here's how one losing investor characterized Rubenstein's and Carlyle's sales pitch for CCC:

Carlyle "offered to sell shares of stock in the fund by knowingly or negligently representing that, among other things, the fund was 'conservative,' 'low risk' and that the 'downside [was] very limited."  Forbes, July 2009
Take anything the PEU boys say with a shaker full of salt.

Monday, August 12, 2019

PEU Ownership Leads to Affiliate Bankruptcies

An academic study found private equity underwriter (PEU) ownership carries financial risk:

Tracking a sample of 484 public to private LBOs for 10 years after going private, we find a bankruptcy rate of approximately 20%, an order of magnitude greater than the 2% bankruptcy rate for the control sample

Deal fees, management fees, dividend bleeding, debt bloating and asset stripping are signature PEU moves that drain valuable capital from affiliates and place them in a precarious financial position in any downturn.

Sunday, August 11, 2019

Carlyle's Rubenstein Interviews Sec. of State Pompeo

Two weeks after The Carlyle Group wagered on naval conflict by buying two shipbuilders Carlyle co-founder David Rubenstein interviewed Secretary of State Mike Pompeo, President Trump's chief diplomat.  The pair talked about a number of world hotspots that could erupt into war on the seas.

The Carlyle Group has a history of war profiteering and stands ready to do so again.  Diplomacy can take the world away from armed conflict or drive nations to war.

Pompeo made it clear he does his boss' bidding.  Fellow advisor Hawk John Bolton has met a war he didn't love.

Carlyle's tea leave reading says naval conflict is coming, something Mr. Rubenstein failed to disclose.

Update 8-15-19:   Bloomberg ran a piece promoting their show. 

Saturday, August 10, 2019

Epstein Kills Himself

Less than a month ago I surmised that Jeffrey Epstein would be killed in jail.  Official reports indicate that Epstein died at his own hand.  Fox News reported:

The death comes two weeks after the 66-year-old was placed on suicide watch after he was found nearly unconscious in his cell with injuries to his neck. At the time, it was not clear whether the injuries were self-inflicted or from an assault.

NBC News reported that Epstein was in his own cell at the time of his death and was no longer on suicide watch.
Jerusalem Post reported:

Routine guard check-ups that were supposed to occur every 30 minutes were not executed the night that Epstein took his own life, sources told Reuters
If the pimp dies do cases against john's go away?  Also, there is an estate to sue.  

Update:  A friend wrote "how can you manage to successfully keep Chapo in prison but not keep Epstein from killing himself?"  I smell another hollow Lessons Learned report.  

Wednesday, August 7, 2019

PEU Paladin to Close Philadelphia Safety Net Hospital

Philadelphia's employment situation will take a second private equity underwriter (PEU) hit with the announced closure of Hahnemann University Hospital and elimination of 2,500 jobs.  This follows Philadelphia Energy Solution's bankruptcy and plant closure with the loss of up to 1,000 jobs.   As more people in Philadelphia fall through the safety net there will be no hospital to care for them.

Hahnemann University Hospital entered bankruptcy after eighteen months of private equity ownership.  Paladin Healthcare and Paladin Capital purchased Hahnemann/St. Christopher's from Tenet Healthcare in January 2018.  A Tenet investor slide highlighted the deal.

Paladin Healthcare promised to be the long term solution for Hahnemann and its safety net clientele.

Tenet Healthcare owned and operated Hahnemann and St. Christopher's for the nineteen years.  For-profit hospitals invest in systems that provide reliable information on hospital finances.

Tenet's Chief Financial Officer's first CFO job within the company was at Hahnemann.

In early June 2019 Paladin asked for public dollars to keep Hahnemann going.  Contrast that development with lofty deal announcement language (just before Labor Day 2017).

"Paladin shares [Tenet's] commitment to providing compassionate, exemplary care and service, and we believe that entrusting the stewardship of these institutions to its affiliate AAHS will benefit the patients, employees, physicians and community for years to come," said Mike Halter, CEO for Tenet's Philadelphia division and CEO of Hahnemann University Hospital.

It never got to "years."  Hahnemann and fourteen fellow corporations entered bankruptcy June 30, 2019.  Center City Healthcare is the lead organization in Hahnemann's bankruptcy.

Hahnemann's 2,400 employees decried the hospital's planned closure, as did Philadelphia's Mayor and the Pennsylvania Governor.  Elected officials cited greed as a reason for Hahnemann's closure.

Paladin plans to break up the healthcare system and sell it in pieces. Modern Healthcare reported on aspects of the deal after it closed in January 2018.

American Academic and real estate investment firm Harrison Street Real Estate Capital, formed a joint venture to acquire a portfolio of four medical office buildings and a parking garage on the Hahnemann University Hospital campus, and the parking facilities at St. Christopher's Hospital for Children. American Academic has retained ownership of the hospital buildings, as well as one medical office building and two parking facilities.
It's not clear how much money Paladin pulled out of the Philadelphia healthcare system prior to bankruptcy.

The deal was financed with a $51 million loan from the investment firm Harrison Street Real Estate, and with a revolving line of credit from MidCap Financial, an affiliate of Apollo Global Management, one of the largest private equity firms in the country.

St. Christopher's was also paying monthly rent of $1.3 million to properties co-owned by Paladin's Freedman and Harrison Street.
Hopefully someone will garner that information in bankruptcy proceedings and share it with the public, especially if tax dollars are used to save the hospital.

Democratic Presidential candidate and Independent Congressman Bernie Sanders said about the closing:

“If you look at this thing objectively and you say that in the midst of a health care crisis, a hospital is being converted into a real estate opportunity in order to make some wealthy guy even more money, ignoring the health care needs of thousands of people, that is pretty crazy.”
Not in our PEU world where politicians Red and Blue love PEU.  It's standard practice.  CNN published information on the size and number of PEU healthcare deals.

Healthcare has been and is increasingly distorted by the greed and leverage boys.  The stories exist and many can be found on PEUReport (ManorCare, Lifecare, PPACA).. 

Tuesday, August 6, 2019

Latest PEU Bankruptcy Perkins Restaurant and Marie Callendar's

Restaurant Business reported:

The parent of the Perkins and Marie Callender’s family restaurant chains has filed for Chapter 11 bankruptcy protection in anticipation of selling the dual brands’ assets.

Perkins & Marie Callender’s also intends to close additional units, the court documents indicate. It recently shuttered 32 stores, according to media reports.
The company's press release makes no mention of its private equity owners, Wayzata Investment Partners.  Wayzata bought the company in 2011.

Perkins and Marie Callendar's had a total of ten corporations file for bankruptcy on August 5th, according to the Delaware Bankruptcy Court.  

How much did Wayzata take in management/deal fees and dividends/distributions since 2011?  What year did they hit free money in the company, i.e. when the cash pulled from the company exceeded Wayzata's initial equity investment?  I don't think even the bankruptcy judge would know the answer. 

Tuesday, July 30, 2019

Carlyle Group Bets on Naval Conflict

Maritime Executive reported:

Private equity companies The Carlyle Group and Stellex Capital Management have agreed to merge two American shipyard firms, Oregon-based Vigor Industrial and Norfolk-based MHI Holdings. The combined company - Titan Acquisition Holdings - will have ship repair, fabrication and defense contracting capabilities on both the Pacific and Atlantic coasts. 
Carlyle cut its teeth on defense contractors, United Defense, BDM international and Vought Aircraft Industries.  Carlyle hired former Defense Secretary Frank Carlucci as managing director.  That was three decades ago.

GovConWire reported on the CarlyleGroup-Stellex Capital deal:

Vigor has approximately 2,300 employees and provides ship repair and fabrication services for defense, aerospace and infrastructure customers through its eight drydocks across Alaska and the Pacific Northwest. Norfolk, Va.-based MHI offers ship maintenance, repair, hull cleaning and ship husbandry services to the U.S. Navy and Military Sealift Command.
Portland Business Journal revealed:

Vigor, which builds and repairs ships as well as fabricates parts for several industries, employs 1,230 local workers and 2,300 overall. It's the region's eighth-largest manufacturer based on employee count. The company reported $678 million in 2016 revenue.

It landed its largest contract ever, a nearly $1 billion contract to build the U.S. Army's next-generation landing craft, in 2017. Vigor also recently took over the former home of Christensen Yachts to set up the all-aluminum fabrication facility, saying at the time it will invest millions in capital upgrades and equipment.

In February, the company announced it would build the craft in Vancouver. It also said the contract could boost its Vancouver employment by 400 workers.

Today Carlyle is a global private equity underwriter (PEU).  The U.S. PEU model involved hiring the politically powerful to influence government support for the greed and leverage boys.  That's now worldwide.

Portland Tribune added:

Vigor also builds high-performance military craft for the United States and other allied foreign governments.

How will Carlyle use its political influence to profit from naval conflicts?

Tom Rabaut, former President and CEO of United Defense and a current operating executive at The Carlyle Group, and Admiral James Stavridis, a retired 4-star U.S. Navy officer, former NATO Alliance Supreme Allied Commander, and a current operating executive at The Carlyle Group, will both join the Board of Directors. 
Rest assured they will.

Update 8-2-19:  President Trump indicated a blockage is under consideration for Venezuela to restrict outside support from Russia, Iran and China.

Update 8-25-19:   The Obama administration declared Venezuela a national security threat and instituted economic sanctions which have harmed citizens.  President Trump seems ready to finish off what Obama started.

Monday, July 29, 2019

Carlyle to Wind Down $4 billion Energy Credit Fund

Seeking Alpha reported:

Carlyle Group is winding down the $4B Carlyle Energy Mezzanine Opportunities Fund II after the departure of the fund's two co-heads, Bloomberg reports, citing people with knowledge of the matter.

David Albert and Rahul Culas recently left the firm, triggering a so-called key-man event. 
Past Carlyle unwinds include hedge fund Blue Wave Partners, Claren Road, Vermillion Asset Management, Diversified Global Asset Management and two mutual funds.

Carlyle Capital Corporation imploded in March 2008, a harbinger to that year's Fall Financial Crisis.

Carlyle's initial energy investments went through Riverstone Holdings.  It faced potential clawbacks after energy prices went south in 2016.

What will be Carlyle's next wind down?

Monday, July 22, 2019

Philadelphia Energy Solutions Bankrupt Again: Carlyle Minority Owner

The Carlyle Group's connection to Philadelphia Energy Solutions flamed out with the company's second bankruptcy filing in two years.  Flashback to September 2012 when the private equity underwriter (PEU) announced the deal:

Philadelphia Energy Solutions (PES), the longest continuously operating refinery in the U.S., today officially launched its partnership with The Carlyle Group (NASDAQ: CG) and Sunoco Inc. (NYSE: SUN) at a celebration attended by elected officials, labor and business leaders, and hundreds of refinery employees. Philadelphia Energy Solutions also unveiled a new video depicting the determined efforts by business, labor and government to keep the refinery open for business.
Public support reached $25 million in grants.  A Carlyle press release cited state dollars:

Philadelphia Energy Solutions, with economic support from The Commonwealth of Pennsylvania, will invest in several capital intensive projects that are critical to the long-term economic viability of the facility. Planned improvements will help the environment through reduced waste and emission, and reduce reliance on foreign oil supplies. The Commonwealth will provide grants to help build a high-speed train unloading facility at the refinery, support a major capital project and upgrade the Cat Cracker (FCCU) at the refinery.
Nearly seven years and one bankruptcy later Philadelphia Energy Solutions literally blew up.

Carlyle had plenty of dry powder to save Philadelphia Energy Solutions but the greed and leverage boys refuse to throw good money after bad.

Here's a picture of the nearly $600 million in good money Carlyle siphoned from PES before its initial fall:

Another interesting fact had the PES executive in charge of derivative trading leave the firm in March.  Carlyle had Semgroup blow up from $2.4 billion in bad energy bets via forward looking contracts.  I am not saying bad derivative bets contributed to PES second bankruptcy but found the timing interesting.

Pennsylvania's Governor is taking a Carlyle like approach in not throwing good money after bad.  Carlyle won't refund public dollars for failure to meet an affiliate's commitment.  Texas learned that with Vought Aircraft Industries.  Governor Rick Perry's office gave Carlyle $35 million for 3,000 new jobs.  As the six year deadline approached Vought had cut 35 jobs, $1 million per job eliminated.

Workers are nervous about their future.  Reuters reported:

The company began selling the refinery’s oil supplies and equipment announcing it would seek to permanently shut the plant, sources have told Reuters.  The asset sell-off triggered worries among workers that the company no longer aimed to find a buyer willing to restart the plant, as it had said it would do.  The sale proposals included offers for future crude cargoes and time-chartered Jones Act vessels, sources had told Reuters. 

More than 600 union refinery workers will be laid off on August 25. Others were let go shortly after the fire. Hundreds of contractors that do business with the refinery are also expected to be affected by the shutdown. 
Owners Credit Suisse and investment firm Bardin Hill and PES debtholders seek to recover $1.25 billion in insurance losses from the June explosion.  The Chemical Safety Board is investigating the blast and is yet to issue a report with their findings.

Most stories on PES second bankruptcy have omitted Carlyle's ownership, albeit now minority.  That echoes the Bush White House which omitted 25 patient deaths from Carlyle owned LifeCare Hospitals from its Hurricane Katrina "Lessons Learned" report.  Like PES, LifeCare declared bankruptcy after seven years of PEU ownership (as did nursing home giant ManorCare after ten years of Carlyle sponsorship).

Some deals sink.  Others blow up but Carlyle's billions in dry powder won't be used to pay back economic development agreements or retain promised jobs.  The PEU boys take their money and run.

Update 7-28-19:  The Obama White House helped setup the deal.  The Trump administration helped the PEU boys avoid responsibility after bankruptcy number 1 and may help again with bankruptcy part deux.

Update 8-19-19:  Bankruptcy trustee objected to Kirkland Ellis serving as bankruptcy counsel for PES due to its representation of PES creditors, Credit Suisse, Carlyle Group and Bardin Hill

Sunday, July 21, 2019

Carlyle Back in Public Water via JV

The Carlyle Group announced a joint venture with VICO Infrastructure  to invest in public water projects.  The announcement comes after Carlyle's contentious ownership of Mountain Water in Missoula, Montana.  Carlyle pulled $2 million in overhead/annual management fees from Mountain Water before reneging on its promise to sell the water utility to the City of Missoula.  Carlyle sucked $15 million from Mountain Water, $10 million in management fees/overhead and $5 million in dividends. 

Carlyle's co-head of its Global Infrastructure Opporunity Fund said of the VICO JV.  WaterWorld reported:

“Population growth and increased economic activity in areas with limited water supply are increasing constraints on water infrastructure. We see a significant opportunity for VICO and Carlyle to invest in these communities to deliver improved, sustainable and resilient infrastructure for all stakeholders.”
Carlyle and VICO will invest in revenue producing projects that will hit citizens directly in their pocketbooks.  Carlyle co-founder David Rubenstein expects 20% annual ROE on infrastructure projects.  It launched a $2.5 billion Global Insfrasture fund in 2016.

WaPo said Carlyle had grown tired of water projects and would focus on energy instead.   That was 2014.  Apparently a few hot summers increased Carlyle's thirst for return.  Thus, public water is back on the PEU table.

Carlyle's partner is headed by the former President of PERC Water Corporation.  PERC completed water projects mostly in California and Arizona.  In Montecito, California wealthy citizens desired more water and mobilized candidates to achieve their objective.   The Water Board refused to hear a proposal from PERC in 2014.  Four years later a Trump like campaign sought to replace the board en masse.

PEU ownership, which is now widespread in healthcare, will not make water more affordable.  Surprise medical bills could soon be followed by surprise water bills.  How high can household debt go for the non-rich?

Saturday, July 20, 2019

Blue Team Members File PEU Bill

Barron's reported:

Sen. Elizabeth Warren (D., Mass.) on Thursday unveiled a proposal for new rules on private-equity firms, likening companies to “vampires” as she took her latest get-tough approach to the financial industry.

Legislation from the 2020 presidential candidate and fellow Democratic lawmakers would require private-equity firms to assume the debts and pension obligations of the companies they buy, prevent loans to private-equity-owned firms already in debt, and make other policy changes.

“Sometimes the companies do well,” Warren said in a post on Medium about the acquisition targets of private-equity firms.  “But far too often, the private-equity firms are like vampires—bleeding the company dry and walking away enriched even as the company succumbs,” she added.
PEU Report chronicled many private equity vampire bites over the last twelve years.

The American Investment Council, an advocacy group for the private-investment industry, blasted Warren’s proposal.
The AIC was once named the Private Equity Growth Capital Council (PEGCC).  My nickname after listening to their message was Private Equity Capital Knowledge Executed Responsibly (PECKER).

The former PECKER Council offered:

“Private equity is an engine for American growth and innovation—especially in Senator Warren’s home state of Massachusetts,” said Drew Maloney, the group’s president and chief executive, in a statement. “Extreme political plans only hurt workers, investment, and our economy.” The group’s members include Blackstone Group (ticker: BX) and Carlyle Group (CG).
Extreme interest expense, debt funded dividends and management fees also hurt workers.  My employer was bought out by a PEU consortium  and they increased debt by 67%.  This is the second time I've worked for a private equity affiliate.  The first time was in the early 1990's.  Today's PEU is much meaner.  

Extreme management cuts hurt customers and employees. When PEU strategies hurt customers, some actually walk.  Employees do likewise.  Turnover in my office has been over 60% under majority PEU ownership.  I've witnessed huge drops in customer service.

The Carlyle Group provided the impetus for PEU Report.  It's good name was not sullied by 25 patient deaths in LifeCare Hospital in New Orleans after Hurricane Katrina.  Carlyle also avoided scrutiny when it sold fifty airport operations to Dubai Aerospace after the public Dubai Ports world brouhaha.  LifeCare sank into bankruptcy under Carlyle ownership.

PEU Report warned about Carlyle's purchase of ManorCare.  Ten years of PEU financial abuse sent ManorCare into bankruptcy.

Serious reporters reached out after reading this blog.  One found it around 2010, another read my numerous ManorCare posts, one from 2011, and contacted me.  That reporter wrote:

The rise in health-code violations at the chain began after Carlyle and investors completed a 2011 financial deal that extracted $1.3 billion from the company for investors but also saddled the chain with what proved to be untenable financial obligations, according to interviews and financial documents. Under the terms of the deal, HCR ManorCare sold nearly all of the real estate in its nursing-home empire and then agreed to pay rent to the new owners.

Taking the money out of ManorCare constrained company finances. Shortly after the maneuver, the company announced hundreds of layoffs. In a little over a year, some nursing homes were not making enough to pay rent. Over the next several years, cost-cutting programs followed, according to financial statements obtained by The Post.
Senator Warren faces an uphill battle as PEUs bleed both Red and Blue.  It's part of the big money machine behind Republican and Democratic politicians.  The greed and leverage boys learned decades ago the benefit of influencing elected officials.  The Carlyle Group located in Washington, D.C for that very reason. 

The other interesting element is PEU ties to serial sex abuser Jeffrey Epstein.  

One Wall Street source with direct knowledge of Epstein’s business said one source of Epstein’s income was providing “tax advice and estate planning” to rich clients, like Apollo Global Management founder Leon Black, presumably because Epstein had experience with offshore funds after basing his office in the Virgin Islands. In 2015 Black made a $10 million donation to Epstein’s foundation. 
Esptein's case reveals the sordid underbelly of big money-politics.  Big PEU names have to be nervous about their Epstein ties, Leon Black, Tony Blair and Bill Clinton (whose presidency saw the rise of many private equity firms).. 

Unraveling stories takes time and patience and the Epstein case is monstrous.  The PEU boys can spin better than most.  For the last twelve years I've tried to unwind some of them. 

Did you know The Carlyle Group put Petroplus in a position for bankruptcy long before Philadelphia Energy Solutions?  Both companies operated oil refineries.   Carlyle affiliate Semgroup operated oil pipelines and declared bankrupt due to $2.4 billion in bad energy bets.  

Who can forget the 2008 Financial Crisis canary in the coal mine, Carlyle Capital Corporation?  The "safe" mortgage backed security fund was levered 39 times.  It imploded in March 2008.  Carlyle claimed no responsibility for CCC's bankruptcy, attributing it to unprecedented tumult.   A reader offered:

You should offer your blog as data for would drive a stake into the vampires. The dead bodies of victims are all around.
A dark PEU history hides behind by lofty words offered by professional lobbying groups, past and current. 

Update 7-23-19:  NYMag published names from Epstein's black book.  PEUs are among the dark crowd.