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 for the group was PECKER, Private Equity Capital Knowledge Executed Responsibly.

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. 
Unraveling stories takes time and patience.  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. 

Thursday, July 18, 2019

Solid to Distressed Debt Overnight under PEU Ownership

Bloomberg reported:

Almost overnight, a $693 million loan Clover Technologies took to the market five years ago lost about a third of its value. The startling nosedive stung even sophisticated investors, people who deal in the arcane business of trading corporate loans.

It immediately became a real life example of the perils of investing these days in the $1.3 trillion market for leveraged loans, where a global chase for yield has allowed an explosion in borrowing and lax underwriting.
This is the shark pool for the greed and leverage boys, private equity underwriters (PEU).  Golden Gate Capital is the PEU behind Clover Technologies.  It plucked nearly $300 million in dividends in 2013-2014, all of it debt funded.  Golden Gate's profits placed Clover at risk for the slightest of financial shocks. Clover lost two customers and that disclosure drove down pricing on the term loan.

Highly levered companies are even more sensitive to reductions in revenue,’’ said Reynertson. “Cash flows can evaporate overnight.”
Private equity affiliates number in the thousands.  Many fit the description below:

Its debt is just over 6 times its earnings, a level that typically raises lender concerns about the company’s ability to meet its financial obligations.  
Clover Technologies was unlucky enough to be purchased by the PEU boys and saddled with sponsor enriching debt.

“When selecting a capital partner, it was critical for us to find one that deeply understood our business. Golden Gate Capital’s exceptional industry expertise was evident from our very first meeting. Without question, the strong partnership we have developed has been crucial to the growth and diversification of our business. Golden Gate shares our vision for the company and has empowered us to execute the strategy and drive results.” -- Jim Cerkleski, CEO, Clover Holdings, Inc.
Driven to debt distress?   Who's next?

Tuesday, July 2, 2019

Carlyle Group Bullies Taylor Swift

Star musician Taylor Swift is "sad and grossed out" by Scott Borchetta and his deal with The Carlyle Group, a politically connected private equity underwriter (PEU).  Music Mayhem Magazine reported:

Ithaca Holdings LLC., a media holding company led by SB Projects founder Scooter Braun, and Big Machine Label Group, a leading independent record label founded by Scott Borchetta, announced today a finalized contract under which Ithaca Holdings will acquire Big Machine Label Group

The Carlyle Group, which initially invested in Ithaca in 2017, is supporting the transaction, alongside Scooter Braun and Ithaca Holdings, through an additional equity investment by way of its Carlyle Partners VI fund. Carlyle will remain a minority shareholder in Ithaca and continue to support the combined company’s growth strategy with Jay Sammons, Head of Carlyle’s Global Consumer, Media and Retail team, remaining on Ithaca’s Board.
Taylor Swift shared her concern that she had no opportunity to buy her music from Big Machine Label Group.  Her rich music library was valued and sold as part of a package deal.

Swift isn't alone in this regard.  The City of Missoula got stiffed by Carlyle on its public water system.  It took a court to rectify Carlyle's bullying of that municipality.

PEUs are ubiquitous in America today.  They own many a failing retailer.  Bain Capital and KKR ran Toys R Us into bankruptcy.  Lawyers earned $56 million and employees got a mere $2 million severance, which amounts to $60 per workers.

Taylor's recent PEU smear followed other music deals.  Billboard reported:

Ithaca’s action follows other Nashville moves by private-equity firms including Blackstone’s purchase of music rights organization SESAC in 2017 and Round Hill’s acquisition of publishing company Big Loud Shirt Industries in 2014. 
Greed is slimy and Swift should be grossed out:

"You hit those hurdles, earn-outs, what have you, and less people in the fund ask you questions or lean on you about where their returns are.  If you don’t hit those hurdles, you will be asked for more reports and more questions will come from an army of MBA’s and finance folks.” 
The PEU beat goes on.

Update 7-15-19:  Kelly Clarkson advised Taylor Swift to re-record her old works.  That would hurt Carlyle, which sold Getty Images for less than it initially paid.  In between Carlyle loaded Getty with debt which likely went mostly to the PEU owner.

Friday, June 21, 2019

Explosions at Carlyle Group's Philadelphia Refinery

Three explosions rocked Philadelphia Energy Solutions (PES) refinery early this morning.  Philadelphia Inquirer reported:

A series of explosions ripped through a refinery in South Philadelphia early Friday, lighting up the night sky and triggering a massive fire.
Gasoline prices rose in the aftermath of the blaze.

Wholesale gasoline prices surged 3.7 percent Friday in New York on speculation that the PES outage might curtail regional fuel supplies.
PES went bankrupt in early 2018, after The Carlyle Group loaded the company with debt used to pay Carlyle massive dividends.  Carlyle tried to take PES public in August 2015 but low energy prices derailed the IPO.

Seeking Alpha explored the bankruptcy and was puzzled by the refinery's agreement with its former rail terminal, which received millions in public funding.

The Carlyle Group spent $175 million in 2012 to acquire a two-thirds stake in PES Holdings, but in return it had to obtain full operational control of the company. PES Holdings was in desperate need of a capital injection at the time in order to upgrade its operations and stay relevant in the refining space.
Under new management, PES Holdings spent $100 million building a rail terminal to receive Bakken crude and $30 million upgrading that facility. By 2015, North Yard Logistics LP was spun off and Carlyle Group decided to buy a stake in the spin-off.
So Carlyle was in full operational control and on both sides of the logistics deal, which it too planned to take public.  Investors don't want to buy a company that has an at risk revenue stream.  Carlyle shored up logistics revenue for North Yard/PES Logistics Partners:

North Yard Logistics LP signed a minimum volume agreement with PES Holdings, where PES agreed to take in 170,000 barrels of oil per day for ten years through that terminal. PES would pay North Yard $1.95 per day to load and unload those barrels, which is equal to a quarterly minimum payment of $29.835 million or an annual payment of almost $120 million. Loading and unloading fees above that volume would be only $0.51/barrel. There were also inflation escalators built into the contract.

During the first half of 2014, the rail terminal's utilization rate was nice and high at 91%, but that was back when it only had 140,000 bpd of capacity.

Various SEC filings provide different capacity figures, as PES Logistics Partners noted that the rail terminal's capacity was going to be increased to 210,000-240,000 bpd, while Energy Transfer Partners LP noted that capacity was going up to 280,000 bpd. It comes down to what types of trains are carrying the crude across America, newer trains means the terminal can offload larger volumes of crude per day.

PES Holdings' utilization of that rail terminal dropped precipitously from 2015 to 2017. Recently, its utilization rate has moved below 30% as PES has only been shipping in 58,000 bpd through the rail terminal. PES still has to pay $120 million per year to North Yard, but that will probably change post-bankruptcy.
PEU Report noted Carlyle's reliance on train shipped oil in early 2015.  Within nine months the picture changed and PES relied on African oil delivered by ship.

PES turbulent PEU ownership isn't over.  Carlyle lists the company as a current holding and promotes its ownership via a value creation video.  As in the case of nursing home giant ManorCare. Carlyle's value can be someone else's destruction.

Update:  ZeroHedge reported on the fire but missed the Carlyle Group ownership connection.

Update 6-26-19:  PES will permanently close its oil refinery (source Seeking Alpha)  PES has no news story on its website about the closure.  Philadelphia Inquirer said owners would position the refinery for a sale and restart.

Monday, June 17, 2019

PEU View from Ground Floor

Twice I've worked for a private equity owned healthcare company.  The first time was in the early 1990's and the second started a year ago when the same private equity underwriter (PEU) obtained majority ownership of my employer (alongside another PE firm). The two experiences were night and day.

In the early 90's I received regular raises and bonuses.  I met one of the principals of the PE firm at a national meeting.  He seemed personable.  I had no concept of private equity.  I just knew we were privately owned and I bought stock in the company in our initial public offering (IPO).  Today that company's debt is rated CCC by Standard and Poors.

In the last year the same private equity firm oversaw the destruction of our office.  Turnover soared to over 50%.  Our new owners cut the number of holidays by 25% and reduced holiday pay by 33%.  They installed unreliable cloud technology and implemented time wasting software which also underpaid employees.  They cut 10% of the workforce as Christmas and New Year's approached.  Our office space was cut in half when they moved us to another location.

Management exhorted us to grow in the midst of this chaos.  We were asked to serve our customers with fewer computers (75%).  The phone is a primary means for us to serve existing and get new patients.  They cut the number of office phones by 71%.  Oh, and my first raise in years amounted to a paltry 0.5%.

The company grew EBDITA by over $50 million during this time.  The principal I met in the 90's is still with the firm.  He no longer seems personable.  Greed ruined a once great local provider.

The PEU virus is now epidemic in healthcare and I directly witnessed its devastating symptoms.  I'm not sure our healthcare system can recover from PEU toxicity.

Update 6-19-19:  ZeroHedge ran a piece on the managerial elite enriching themselves via complexity and obfuscation,  Author Charles Hughes Smith sees healthcare as a failed system that will bankrupt the nation.  His view echoes that of Dr. W. Edwards Deming who once called rising healthcare costs one of management's seven deadly diseases.

Saturday, June 15, 2019

PEU Erskine Bowles Helps Gobble Whataburger!

Dallas Morning News reported:

Whataburger, the beloved burger chain with a 69-year family legacy in Texas, has sold a controlling interest in the company to Chicago-based investment banking firm BDT Capital.
Crunchbase had this to say about BDT Capital Partners:

BDT Capital Partners is a private equity arm of BDT & Company.
Whataburger will be PEU owner come fall.  BDT Capital has New York roots.  Founders Byron Trott worked for Goldman Sachs and William R. Bush for Fulbright Jaworski.  An April 2009 press release stated:

William (“Bill”) Bush, is retiring from Fulbright after more than three decades to join BDT Capital Partners, a merchant bank based in Chicago, Illinois, that will invest in and advise family and entrepreneurially controlled or influenced companies. Bill will serve as a founding partner and General Counsel of BDT Capital Partners, along with founder and managing partner Byron Trott, formerly of Goldman Sachs. 

PEU Erskine Bowles is Senior Advisor and non-Executive Vice Chairman of BDT Capital.  Bowles founded Carousel Capital and served on Morgan Stanley's board until February 1, 2018.  Morgan Stanley advised Whataburger's founding family on the sale.

Its employees work on all aspects of a business and serve both in advisory and investment roles. 

BDT recently bought a stake in WhistlePig Whiskey. reported on other holdings:

BDT has majority shares in Dunkin’ Donuts, Krispy Kreme, Panera, Einstein’s, and others. BDT also has majority shares in competing coffee companies, like Peet’s Coffee & Tea, Caribou Coffee, and Sara Lee’s coffee.

The Chicago Tribune reported in 2017 that BDT also had shares in Intelligentsia, Lou Malnati’s pizza chain, and Athletico Physical Therapy.
I hope Whataburger employees have a better PEU ownership experience than my health care coworkers.  That's a topic for another story. 

Monday, June 10, 2019

It's a PEU World: 30,000 Foot View

Over half of U.S. companies are owned by private equity underwriters (PEU) according to FT.  Milken Institute researchers published "Companies Rush to Go Private" in August 2018.  Michael Milken is considered the founder of leveraged buyouts which morphed into private equity.

Private equity owned/backed companies are much smaller than their public counterparts.

The PEU model initially loads affiliates with debt, deal fees and annual management fees.  It often adds another layer of debt to pay its sponsor (the PEU) a special dividend/distribution as well as more deal fees.

Workers have seen their wages stagnate as PEU ownership spread like a toxic chemical spill.  The billionaire class which is widely represented in the PEU community received the economic benefits while workers did not. 

The period from the black line to today corresponds with the time frame from the first graph showing how private equity underwriter owned firms became ubiquitous.

Adding debt initially and over time is a signature PEU move.  Micheal Milken was known as the Junk Bond King before he was convicted and sent to jail.  Junk bonds are less than investment grade and carry a concern that they will be paid off.  The concern can rise to whether their next interest payment will be made.

Forbes reported on record issuance of B3 rated bonds and the concern they may default in an economic downturn.

The Financial Stability Oversight Council met May 30th to discuss this very possibility.  The Street,com headline read:

The Financial Stability Oversight Council, a panel of top U.S. regulators charged with preventing future financial crises, met Thursday to discuss the past decade's surge in corporate borrowing, much of it by companies with junk-grade credit rating. An economic downturn likely would bring a wave of credit-rating downgrades and debt defaults that could ripple across markets.
The Board heard public testimony/feedback on the issue.  The PEU boys submitted a report defending their industry as safe and solid.

It read like Carlyle Group co-founder David Rubenstein's 2006 sales pitch for Carlyle Capital Corporation.  CCC was the canary in the coal mine, imploding in March 2008, six months before Lehman Brothers fell..

Federal Reserve Chair Jay Powell sees potential corporate debt defaults as a recession amplifier but noted times are good in a House of Representatives report on leveraged lending.  Powell worked for The Carlyle Group for eight years. 

Rest assured the PEU boys have something to sell and they want the little investor to buy.  The Milken report offered:

Regulations that segregate investment opportunities, and exclude large groups of investors from profitable investment opportunities have severe consequences that include worsening the distribution of wealth. Such exclusionary practices raise thorny social justice issues regarding whether all investors should have equal access to investment opportunities.

However, as more companies are owned by PE funds in which households cannot invest, social policy questions about the fairness of maintaining an unequal distribution of investment opportunities need to be addressed. Moreover, legislation that mandates listed companies to meet more social and wealth distribution objectives that are not directly related to the operations of the company, likely will incentivize even more delistings from stock exchanges and exits into private ownership. This, in turn, likely will exacerbate the unequal distribution of investment opportunities and worsen the already skewed distribution of wealth.
There is always a final mark.

Update 6-11-19:  Nearly half of Americans (43%) cannot afford the basics of life.  Regulators are concerned about junk loans and their possible default.  "When the credit cycle finally does turn, UBS estimates investors in junk bonds and leveraged loans could lose almost a half-trillion dollars." (Bloomberg)

Update 6-16-19:  The top one percent of Americans gained $21 trillion in wealth since 1989 while the bottom 50 percent lost $900 billion.


Sunday, June 9, 2019

Rahm Joins Rubin at Centerview

Former Obama Chief of Staff and Chicago Mayor Rahm Emanuel will join Centerview Partners.  In his senior counselor role Emanuel will establish a Chicago office for Centerview.  Crain's Chicago Business reported:

The long-time Democrat decided not to seek a third mayoral term last year, after several decades in the political sphere, including as a senior adviser to President Bill Clinton, a three-term U.S. House representative from Illinois and chief of staff to President Barack Obama. After he left the Clinton White House, Emanuel was a Chicago-based investment banker with Wasserstein Perella for two years through 2000.
Emanuel will work alongside former Treasury Chief Robert Rubin, also a Senior Counselor for Centerview Partners.  Rubin joined the firm in 2010.

Rubin and his successor, Lawrence Summers, pushed for several policies that benefited Wall Street. The most significant were thwarting an attempt to regulate financial derivatives and repealing the Glass-Steagall Act, which separated commercial and investment banking.
Emanuel made $18 million in two and a half years working for Wasserstein Perella.   Politico noted:

Emanuel turned big Democratic donors and others he’d met during his White House years into clients for Wasserstein Perella, a firm that was led by Bruce Wasserstein, a hefty financial supporter of Clinton.
One of Centerview's co-founders, Robert Pruzan, worked at Wasserstein Perella.  Pruzan and Blair Effron founded Centerview in 2006. 

Emanuel's mentor Bruce Wasserstein died in 2010.  Vanity Fair reported:

This is the same Bruce Wasserstein who deprived the state and city of New York of some $75 million in capital-gains taxes (12 percent of his capital gain of around $625 million) when he claimed to have moved his residence to London in 2001, after he had sold Wasserstein Perella to Dresdner Bank.
Rahm will be reunited with Rubin, the man who helped break the world.  It sounds like the premise for a horror movie. 

Emanuel is a brawler. He’s legendarily tough and effective and ruthless. He's the type of guy who makes enemies, then makes lists of his enemies, then makes lists of his enemies’ friends, then makes lists of how they’ll pay.

Emanuel picked up a knife and called out the names of different politicians who had “f–––ed us.” After each name, Emanuel would cry out, “Dead man!”—and stab the knife into the table.
Jerk Rahm joins the man who ramped up risk to benefit the greed and leverage boys.  Apparently $18 million isn't nearly enough for retired politicians and their financial backers.  Emanuel has more brawling to do.

Thursday, May 9, 2019

Milken History for Younger Generations

Zerohedge reported on the interview with an interesting question:

Q:  "Why do younger generations seem to be losing faith in the free enterprise system?" -- Host Michael Milken
A:  "This is an entire (group of people) that don't know history." --  Ken Griffin
They may not know Cold War history but they lived through a significant financial event.  The young adult generation were children during the 2008 economic crisis.  They could sense the stress their parents, family, community and our society experienced during that crisis.  President George W. Bush and his advisors were clearly rattled and mobilized trillions ($) to save Wall Street. 

Conference host Michael Milken was part of an earlier economic crisis, one handled by President George H. W. Bush.  Before we enter that period of history consider Milken's bio which states:

Between 1969 and 1989, he revolutionized capital markets by pricing and rewarding risk more efficiently and democratizing access to capital. He financed thousands of companies that collectively created millions of jobs.
Had Mr. Milken achieved his claim he would not have gone to jail nor would the federal government have to bail out the Savings and Loan industry.  Consider his history:

The NYTimes reported in 1990:

Savings and loans played a central role in the development of the junk bond market, and many of Mr. Milken's largest clients were savings institutions that invested heavily in junk bonds underwritten by Drexel. In the rescue legislation signed by President Bush last summer, savings and loans were required to sell their junk bond holdings by 1994. The junk bond market has since collapsed, and institutions are having trouble unloading their holdings.

Last fall Drexel pleaded guilty to six criminal charges that described Mr. Milken as being at the crux of schemes which allowed the firm to cheat a client, trick a corporation into being taken over and manipulate the marketplace. In early February, faced with mounting financial pressure, Drexel collapsed and is now liquidating.

The move that led to Mr. Milken's downfall was his decision to provide hundreds of millions of dollars in financing to Mr. Boesky's stock trading corporation. Because Mr. Boesky was betting on takeovers, many of which Drexel put together, the relationship was viewed on Wall Street as questionable if not a clear conflict-of-interest.

According to the Government charges against Mr. Milken, Mr. Boesky was frequently called by the financier and instructed on investments to make. Those instructions were intended to benefit Drexel, sometimes to the disadvantage of the firm's clients.
That does not sound like pricing risk more efficiently or democratizing access to capital.  For his criminal deeds Milken paid a $600 million fine and was sentenced to ten years in jail.

Judge Wood said the former financier had to be sentenced to a long jail term to send a message to the financial community, and also because he chose to break the law despite his advantages of position and intelligence.\
"When a man of your power in the financial world, at the head of the most important department of one of the most important investment banking houses in this country, repeatedly conspires to violate, and violates, securities and tax laws in order to achieve more power and wealth for himself and his wealthy clients, and commits financial crimes that are particularly hard to detect, a significant prison term is required," she said.
Milken served 22 months.   Congress estimated in 1992 a $215 billion cost to clean up the Savings and Loan Crisis.  The report said this amounted to $800 for every man, woman and child in the U.S.  

The full extent of Mr. Milken's wealth has never been publicly disclosed. But he is expected to remain a very rich man despite the fine,
Reformed crook Michael Milken helped democratize government bailouts for the financial industry while maintaining his ill begotten gains.  He is the poster child for the private equity underwriter (PEU) class.  The greed and leverage boys believe unconstrained free markets (with significant government subsidies) are the solutions to all of America's ills.

The younger generations know this not to be true.  It's in their lived childhood experience.  The older generation should know better but greed is an tantalizing, unrelenting taskmaster.    

Sunday, April 28, 2019

Carlyle to Pull $1.35 Billion Out of PPD

Arabian reported:

Hellman & Friedman LLC and Carlyle Group LP are seeking to take as much as $1.35 billion of cash out of drug research company Pharmaceutical Product Development LLC. 

The firm’s private equity owners are seeking approval from some of PPD’s creditors for the dividend plan, according to people familiar with the matter. To fund the payment, PPD is mulling the sale of a risky type of junk bond called PIK toggle that allows a borrower to delay interest payments, said the people, asking not to be identified discussing a private matter. 

The plan to take cash out of PPD - one of the largest providers of outsourced clinical research whose clients have included GlaxoSmithKline Plc and Pfizer  - comes at a particularly turbulent time for the health care sector.  

In this case, the debt would be issued by PPD’s holding company, ranking it below most of PPD’s existing borrowings and one step further removed from the company’s assets, the people familiar said. 
Affordable healthcare is the public's biggest worry and has been for decades.  Private equity underwriters are ubiquitous in healthcare and have added significant costs to the system. 

Carlyle Group and Hellman & Friedman acquired PPD in 2011, in a deal valued at $3.9 billion. The Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC joined as minority investors in 2017 as part of a recapitalisation that valued the company at more than $9 billion
Greed lives and elected officials cater to the PEU boys and their insatiable longing for more money, power and influence. What's another $1 billion among friends?

Update 4-30-19:  Pitchbook ran a piece on the proposed $1.4 billion dividend Carlyle plans to suck out of PPD.

(PEU Report noted Carlyle's original purchase of PPD and it's strange 2017 deal.  Other PEU PPD pieces can be found here.)

Wednesday, April 24, 2019

Apollo Crammed Down CEVA Executives It Required to Buy Stock in Affiliate

Apollo Global Management LLC purchased CEVA for $1.9 billion in November 2006.  The deal required CEVA executives to invest in their private company's stock.  Bloomberg reported:

Shortly after the CEVA purchase, Apollo acquired another logistics company, EGL Inc., for $2.1 billion, doubling the debt on the books of the merged company.

Apollo says that in 2006 and 2007 managers were given the opportunity to invest since it would give them “skin in the game.”

By 2007, CEVA’s bonds had started tumbling and Apollo began buying. From 2007 to 2011, Apollo purchased CEVA bonds for an average price of 50 cents on the dollar, according to an Apollo document.
In 2013 Apollo forced a recapitalization of CEVA as the major holder of the company's debt.  The move made CEVA's nonpublic stock worthless, including company stock executives had been forced to purchase.

CEVA rolled out a new share plan in 2013 that offered managers the possibility of recouping losses -- if they gave up the right to sue. 
CEVA went public in May 2018. In November, Apollo sold its remaining stake. Taking into account management and transaction fees, the buyout firm made a profit on the deal.
To sum up, Apollo bought two companies, CEVA and EGL, and loaded them with debt.  Shortly after completing the deal investors deemed the company a poor risk and the price of its bonds cratered.  Apollo took advantage and bought back the debt at a 50% discount.  They used that debt to zero out the companies nonpublic stock.  Apollo and other debt holders received the new equity for the firm.

In 2013, when Apollo’s debt-for-equity swap rendered CEVA executives’ shares worthless, current and former managers say they were shocked.
There is nothing shocking about the PEU boys and what they will do to fulfill their ceaseless greed.  Apollo had their sticky fingers in on every side of the deal. 

Tuesday, April 23, 2019

Carlyle's AsiaSat Pipe Full of Smoke

WSJ reported:

Orbiting 22,000 miles above Earth, a fleet of American-built satellites is serving the Chinese government in ways that challenge the U.S.
TechCrunch added:

The Chinese government has been using a private company jointly owned by a U.S. investment firm and its Chinese counterpart to expand its surveillance and telecommunications capabilities using American technology,

At the center of the Journal’s reporting is a company called Asia Satellite Telecommunications (AsiaSat). It’s a satellite operating company acquired back in 2015 by U.S. private equity firm The Carlyle Group and Chinese private equity firm CITIC Group. Both Carlyle and CITIC are known for their ties to government in their respective home nations.

Carlyle pretended to be hand's off regarding uses of AsiaSat's satellites.

In statements to The Wall Street Journal, Carlyle said that AsiaSat’s equipment supports internet and phone communications for Chinese telecommunications carriers.

“It is effectively a pipe,” Carlyle said in a statement to the Journal, “and AsiaSat, because of privacy issues, doesn’t monitor or regulate the content that flows through it.”
Carlyle has long read U.S government tea leaves and profited handsomely.  The politically connected private equity underwriter (PEU) went global some time ago.  It promotes Carlyle as creating opportunities in virtually every market around the world.

Before Carlyle laid any pipe it was well aware of the market for what could flow through it

Carlyle has two managing directors on AsiaSat's board of directors. 

I'm sure they are well aware of the market opportunities available to AsiaSat from a repressive Chinese government.  Carlyle demands it as well as grand returns.  The greed and leverage boys will obfuscate when their mendacity is revealed.  It's like blowing smoke from a pipe....

Tuesday, March 26, 2019

Healthcare Nonprofits Go PEU

Over 40,000 players attended the J.P. Morgan healthcare conference for 2019.  Becker's Hospital Review reported:

Over the last decade, there has been a massive level of consolidation with hundreds of hospitals and thousands of physician practices being acquired every year. While more mergers and acquisitions will still happen, this stunning and fundamental restructuring of healthcare delivery has taken place and there is no turning back. This is likely the single biggest shift relative to how healthcare is structured in this country that will take place during our lifetime, and it barely gets mentioned.  
Private equity underwriters (PEU), great acquirers, barely get mentioned as a cancer on our economy and workplace.  Becker's noted how nonprofit hospitals act like PEUs:

Spectrum Health has a $100 million venture fund. Providence St. Joseph's Health announced a second $150 million venture capital and growth equity fund. Mayo Clinic Ventures has returned over $700 million to their organization. Jefferson Health has a 120-person innovation team focused on digital innovation and the consumer experience, partnering with companies to build solutions.
My consumer experience has been that I pay more each year for less healthcare coverage.  I've paid out of pocket for the few health services I've consumed.  Friends work for large healthcare companies, nonprofit and for-profit, and many feel abandoned by executives misplaced priorities. 

Bad managers only know how to act with data and often do so without an understanding of variation.  Thus they made decisions that waste time, money and harm people.

... the lifeline for every health and healthcare hub will be actionable data. Applied analytics is a boring term that is actually gaining traction and starting to dislodge buzzwords like big data, machine learning and artificial intelligence relative to its importance to healthcare providers.
What happens when healthcare leaders are unable to tell the difference between correlation and causation?  How much harm will they cause?

Employees did not show up in the future of healthcare.  I predict healthcare will get much worse under these PEU management practices.  Nonprofit healthcare systems have downed the language/strategies of the greed and leverage boys.  This is most concerning.  A dark future awaits. 

Update 3-27-19:  Two large government health insurers, Centene and WellCare, announced a deal today.  An activist with ALS offered "... this is how they do business—deny, deny, delay, and then people give up."  So much for platforms and big data.

Friday, February 8, 2019

Carlyle Promotes Lobbyist Stacey Dion

GovConWire reported:

Stacey Dion, a managing director of The Carlyle Group (Nasdaq: CG), has been promoted to global head of government affairs at the Washington, D.C.-based private equity firm.

In her new role, she will work with the company’s senior executives and investment professionals in efforts to drive its legislative and regulatory efforts, Carlyle said Wednesday.

Before she joined the investment firm in 2016, she was vice president of corporate public policy at Boeing (NYSE: BA).
Dion was Policy Advisor and Counsel to Republican House Leader John Boehner from 2007-2008.
That's the period of the Financial Crisis that produced TARP and multiple government programs that enriched Carlyle (BankUnited, Boston Private Financial).

Dion served as Carlyle's lobbyist since 2016.  Carlyle spent $590,000 on lobbying in 2018 and $390,000 in 2017.  Last year Dion lobbied for Carlyle on the following issues:

  • Issues related to corporate tax reform (H.R. 1 - Tax Cuts and Jobs Act); issues related to Opportunity Zones; TCJA (H.R. 1) Regulations
  • Issues related to infrastructure and public-private partnerships (P3s)
  • Issues related to EPA administered program; H.R.8 - Water Resources Development Act of 2018, provisions related to the use of Army Corps data by non-federal interests
  • H.R. 4267 - Small Business Credit Availability Act, provisions related to leverage ratio
A similar era as the Fall 2008 Financial Crisis may be nearing.  At risk is corporate junk debt issued by the likes of Carlyle and its PEU brethren.  

I'm sure GHGA Dion has many willing listeners on Capital Hill.  America's Red and Blue political teams love PEU.  Add that Fed Chair Jerome Powell and Vice Chair Randall Quarles have Carlyle Group pedigrees.  Dion, Congress and the Fed to the PEU rescue?

Sunday, February 3, 2019

PEU Greed Behind Weath Inequality

Private equity underwriters (PEU) are behind the rise of financialization, debt-fueled speculation and globalization that has enriched the rich since 1984.   Bain Capital was established that very year.  Pete Peterson and Stephen Schwarzman started Blackstone in 1985.  The Carlyle Group began in 1987.  Leon Black founded Apollo in 1990 while David Bonderman started TPG in 1992.

Fox News contributor Tucker Carlson spoke on America's mercenary leaders who don't bother to understand our problems.

Romney spent the bulk of his business career at a firm called Bain Capital. Bain Capital all but invented what is now a familiar business strategy: take over an existing company for a short period of time, cut costs by firing employees, run up the debt, extract the wealth, and move on, sometimes leaving retirees without their earned pensions. Romney became fantastically rich doing this. Meanwhile, a remarkable number of those companies are now bankrupt or extinct. This is the private equity model. Our ruling class sees nothing wrong with it. It’s how they run the country.
Both of America"s political teams cater to the PEU class.  Tucker's Red Team has long served the greed and leverage boys.  The Blue Team began its PEU lean-in under President Bill Clinton.  For decades both parties grovelled to the Billionaire boys club which recently met in Davos, Switzerland.

PEUs paid ex-U.S. Presidents hefty sums for an hour long talk at their annual accredited investor meeting.  Publicly traded PEU unit holders were not invited.

Carlyle Group co-founder Daniel D'Aniello wants every citizen to have a PEU investment.  He recently said:

“You’re talking about retail investors coming into the asset class, and that could eventually occur; everybody’s working on the formula for it."  
The article called it "democratizing private equity."  That statement is patently laughable.  It's made even more so by PEUs not giving unitholders a vote, as Carlyle did after it went public..

The PEU model infected our country.  It will take strong medicine to drive that toxin away.  Neither party is able to address toxic PEUs. 

Saturday, February 2, 2019

Rubenstein Reminds Davos of Dubai Ports World

CNBC interviewed Carlyle Group cofounder David Rubenstein from the World Economic Forum meeting in Davos, Switzerland.

Reporter Becky Quick referred to Rubenstein as "deeply sourced in Washington, D.C."  Later she remarked  how comfortable Fed Chair Powell felt with Rubenstein, but failed to mention Powell once worked for The Carlyle Group.

Rubenstein talked about political risk in the United States.  He said:

"Remember the famous Dubai Ports case?" 

Salesman Rubenstein knows Carlyle sold affiliates Landmark Aviation and Standard Aero to Dubai Aerospace just months after the Dubai Ports World debacle.  Fifty airports vs. six ports, which is worthy of greater outcry?  Deeply connected Rubenstein's deal went through without a peep.  He reminded the Davos crowd and CNBC anchors of this accomplishment ever so indirectly

The annual meeting of the billionaire boys club is over.  The world still aims to serve them.  Slap your bootstraps on and enjoy being ridden.  It's the PEU way.

Thursday, January 31, 2019

Tax Talk Will Get Davos Speaker Uninvited

The Guardian reported:

A discussion panel at the Davos World Economic Forum has become a sensation after a Dutch historian took billionaires to task for not paying taxes.

In a video shared tens of thousands of times, Rutger Bregman, author of the book Utopia for Realists, bemoans the failure of attendees at the recent gathering in Switzerland to address the key issue in the battle for greater equality: the failure of rich people to pay their fair share of taxes.

Noting that 1,500 people had travelled to Davos by private jet to hear David Attenborough talk about climate change, he said he was bewildered that no one was talking about raising taxes on the rich.
Private equity underwriters (PEU) retain preferred carried interest taxation twelve years after Congress' first attempt at removal.

No one talks about raising taxes on the rich at Davos because the rich are Davos. However, they do care about the common person being able to invest in private equity.

Sunday, January 27, 2019

Some Davos Men Ready to Move on with Saudi Arabia

FT reported:

,,, the Khashoggi affair had been relegated to the past. Saudi officials highlighted recent deals as proof, including infrastructure projects with international companies. They also pointed to $7.5bn of new government debt that was raised this month with the help of banks including JPMorgan Chase, HSBC, Citigroup and BNP Paribas.
JP Morgan targeted Saudi Arabia for business before the kingdom exterminated journalist Jamal Khashoggi.  Others Davos attendees weren't so sure.

Some senior western financiers said re-engaging with the kingdom so soon after Khashoggi’s grisly killing would be too controversial. Several people attending Davos this week told the FT that the country remained in the “penalty box” and urged Riyadh to offer bolder gestures of reassurance.
Last year Crown Prince Mohammed bin Salman was a star attraction at the Billionaire Boys Club which includes purchased politicians. The Crown Prince released his Uncle from prison last year as Davos neared its close and the Saudis sponsored a luncheon touting private investment in the Kingdom.

Imprisoning Prince Alaweed bin Talal and killing journalist Jamal Khashoggi, what won't the Davos man forgive on behalf of their billionaire brethren? Deals have to be done.

Thursday, January 24, 2019

Workers Need to Take Out Private Sector Loans for Welshing Federal Employer

From Davos CNBC's Andrew Ross Sorkin interviewed U.S. Commerce Chief Wilbur Ross.  Sorkin asked about unpaid federal workers and their worsening financial plight.  Ross referred to their situation as "not a good excuse why there should be a liquidity crisis."  Liquidity crisis is the language of the greed and leverage boys who gather annually in Davos and infect the highest levels of Western government (like PEU Wilbur Ross).

Contrast Ross with George Bailey and his newlywed wife when a bank run hit Beford Falls in It's a Wonderful Life.  Their response to scared and hurting customers, "What do you need?"  Leaders would ask that question and loan working employees the money needed to ride out a management created crisis.

Wilbur Ross' Invesco has huge money to invest in bank loans.  One might consider 800,000 federal employees needing credit a unique market opportunity.

Commerce Secretary Ross did not steer credit seeking employees to Invesco but to public sector credit unions.  A WEF website article quoted Ross on bank complexity in 2012.

I think that the real purpose and the real need that we have in this country for banks is to make loans particularly to small business and to individuals. I think that’s the hard part to fill.
Which Ross is right, the "easy to obtain a loan" public servant or the "hard to get a loan" private financier?  The Ross CNBC transcript is below:

ANDREW ROSS SORKIN: Mr. Secretary, but they're – but many of these people need -- Mr. Secretary, many of these workers clearly need the paycheck on a week-by-week basis. They're not, frankly, in my shoes, nor in yours. Nor in yours.


ANDREW ROSS SORKIN: So the question is, is this battle and fight at this point in the ball game worth it? Meaning, is the debate over everything else that the administration is fighting for worth more than the risk that's being taken on at the moment and the affect it's having on families of federal workers?

WILBUR ROSS: Well first of all, the banks and credit unions should be making credit available to them. When you think about it, these are basically government-guaranteed loans because the government has committed these folks will get back pay once this whole thing gets settled down. So there really is not a good excuse why there should be a liquidity crisis. Now, true, the people might have to pay a little bit of interest. But the idea that it's paycheck or zero is not a really valid idea. There's no reason why some institution wouldn't be willing to lend. And indeed we've heard tales of some of the –

ANDREW ROSS SORKIN: So it should be put on the private sector? The private sector needs to step up where the public sector can't?

WILBUR ROSS: No. What I'm saying is there have been ads run by a number of the public-sector credit unions, which are member organizations of the people who work in the departments. Those have announced very, very low interest rate loans to bridge people over the gap. That's the kind of cooperation between financial community and employee that really is warranted. It's a totally safe loan because at the end of the day it's 100% government guarantee.
Ross offered his version of TARP:  Too Arrogant for Real People on CNBC.  Workers are but serfs today and their masters are riding them hard.

Sunday, January 20, 2019

Greed, Leverage Boys Epitomize Davos

The Independent reported:

This year, hedge fund (and private equity) billionaires will fly to Davos in private jets to discuss the threat of climate change, and millionaire CEOs will discuss inequality at lavish drinks events.

...Davos provides a rare opportunity for world leaders and corporate executives to discuss global issues quietly in public and private meetings.

“Judging by the state of the world right now, 10 years on from the financial crisis and the dysfunctional state of global politics, I would suggest that these annual events have achieved the sum total of diddly squat,” says Michael Hewson, chief market analyst at CMC Markets UK.
Hardly, the annual gathering benefited the pocketbooks of the greed and leverage boys. Three years ago OXFAM called the Davos gathering a "busload of billionaires."  Four years ago the WEF identified inequality as the most significant trend.  It identified severe income disparity as a global risk starting in 2012.

While high earners experienced rising wages for the last decade middle income and low wage workers suffered.

The greed and leverage boys continue to have access to preferred carried interest taxation.

Their numbers reached an all time high in 2018.  FT reported:

As of January 2018, a record 2,296 private equity funds were active in the market, seeking to raise an aggregate $744bn, representing a 25 per cent increase compared with a year earlier.
I have experienced the impact of private equity ownership more than once in my career.  After the latest PEU takeover coworkers lost jobs, employees received reduced benefits and management bullying escalated.

Our executives have an equity stake in the company, workers do not.  C Suiters look after their interests to the detriment of customers and employees.  Busloads of billionaires have long set a self-serving agenda at Davos and for that the world has suffered.

Update 1-21-19:   ZeroHedge reported  "... no less than 1,500 private jet flights will land in Davos over the five days of its duration: a 50% increase in both private jets and toxic environmental emissions compared to last year, when roughly 1,000 private jets descended upon Davos."  The billionaire boys club begins in earnest.

Update 1-22-19:  At Davos Prince William will challenge business leaders to improve emotional and mental wellbeing in their workplaces.  I can attest to the damage done by PEU practices to employee mental health.  Greed is distinctly uninsightful, one-sided and creates many losers.

Update 1-23-19:  Jesse'sCafeAmerican wrote:  "The news of the day from Davos was almost unbelievably scripted and vacuous behind the headlines, while at the same time mildly nauseating.   Much like so many modern reality TV shows."

Update 1-24-19:  The Davos boys met to solve the very problems they created in vastly enriching themselves.  Bono had a big day for a PEU.  He called capitalism a wild beast.

Update 1-25-19:  Solving the world's problems while further enriching billionaires.  The game is rigged against common people.

Update 1-26-19:   One member of the super rich stated "the ordinary people who drive a prosperous economy are instead impoverished in favour of the bank accounts of billionaires."

Update 1-27-19:  LATimes reported on the massive increase in PEU founder wealth. "The fortunes of a dozen 2009 Davos attendees have soared by a combined $175 billion, even as median U.S. household wealth has stagnated."  Davos worked for the billionaire boys club for the last decade, not for the common person. "Compensation for chief executives in America’s largest firms is now 312 times the annual average pay of the typical worker, compared with about 200 times in 2009, 58 times in 1989 and 20 times in 1965."