Friday, July 3, 2020

Celebrating Equality in Time of Massive Inequality, Rubenstein Style

Carlyle Group co-founder David Rubenstein's July 4th message encouraged citizens to look at our nation's founding principles as aspirational goals.

And we should resolve that in celebrating the Fourth of July and the Declaration, we are really celebrating where the country should be heading – where everyone can feel and be equal in rights and opportunities – and hopefully will arrive someday soon.
Mr. Rubenstein had the right to meet with Presidents.  Most citizens have not.  Carlyle lobbied for and kept preferred carried interest taxation for over a decade.  Rubenstein's calls are answered personally by sponsored politicians.  His will makes it into federal policy and law.  Citizens wanting the wealthy to pay more taxes or have healthcare be more affordable and less complex are ignored.

We should all have the opportunity to have employed the Chairman of the Federal Reserve and be bailed out with trillions in economic programs.   Instead many citizens worked for private equity affiliates and experienced the kind of massive upheaval that prioritizes interest payments, management fees and sponsor dividends over taxes, wage increases and benefit improvements.

Rubenstein knows Jefferson the idealist was different from Jefferson the industrialist.  The Smithsonian wrote:

It had long been accepted that slaves could be seized for debt, but Jefferson turned this around when he used slaves as collateral for a very large loan taken out in 1796 from a Dutch banking house in order to rebuild Monticello.  He pioneered the monetizing of slaves, just as he pioneered the industrialization and diversification of slavery.
Jefferson declined proceeds from his friend's estate that would've provided funds to free his slaves. Instead he used slaves as collateral on a very large loan.  The Smithsonian piece makes it clear Jefferson's actions were his choice:

A letter has recently come to light describing how Monticello’s young black boys, “the small ones,” age 10, 11 or 12, were whipped to get them to work in Jefferson’s nail factory, whose profits paid the mansion’s grocery bills.
So on July 4th know Thomas Jefferson was a PEU founding father.  That's my interpretation of history, Mr. Rubenstein.

Update 7-5-20:  NYT ran a piece citing the evils of private equity. "In pursuit of maximum returns, such firms have squeezed businesses for every last drop of profit, cutting jobs, pensions and salaries where possible."  The author cited the private equity tax loophole, carried interest.  Foreign Policy had this to say about the PEU boys, "close the loopholes in tax and regulatory law that allow private equity companies to function as predators on the real economy."  Matt Stoller wrote "corporate America fell into disrepair as private equity funds cut much more than fat, carving deeply into bone and muscle."

Update 7-7-20:  A descendant of Thomas Jefferson called for the Jefferson Memorial to be replaced. Frederick Douglas spoke these words in 1852, “To side with the right, against the wrong, with the weak against the strong, and with the oppressed against the oppressor! Here lies the merit, and the one which, of all others, seems unfashionable in our day.” 

Thursday, July 2, 2020

TPG's Slippery Pre-bankruptcy Move for Cirque du Soleil

Canada’s Cirque du Soleil Entertainment Group filed for bankruptcy protection on Monday, June 29, 2020.  NYPost reported:

On March 30, the entertainment company, which boasts TPG as its controlling shareholder, moved the majority of its worldwide trademarks to a brand-new entity, a senior lender told The Post. The next day, the Montreal-based company — known globally for its flashy acrobatic and aerial acts — missed an interest payment on its $900 million senior debt, setting the stage for its bankruptcy, according to reports and sources.
What value did those worldwide trademarks have when lenders made their original deal with TPG and Cirque du Soleil?

TPG, run by billionaires David Bonderman and James Coulter, bought Cirque in a 2015 deal that valued the entertainment giant at $1.5 billion. TPG walked away with a 60-percent stake, Caisse and Fosun took smaller stakes, while Cirque’s accordion-playing, fire-eating co-founder, Guy Laliberte, grabbed 10 percent, which he later sold to Caisse.

The entertainment company, which got its start with a ragtag team of street performers, was loaded down with a towering $1.2 billion in debt in the deal.
Prior PEU pre-bankruptcy moves included paying sponsors a dividend or giving huge management bonuses.  TPG's move is the latest PEU innovation from the greed and leverage boys.

TPG and other Cirque shareholders — including Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund, and Shanghai-based Fosun International Ltd. — provided Cirque with $50 million in emergency financing.

Instead of issuing the loan to the company at large, they directed it to the new trademark unit, a move that instantly bolstered their status in bankruptcy, sources said.

As mere shareholders, TPG would have been forced to stand behind existing lenders in a bankruptcy. Likewise, if it had loaned the larger company millions, it would have been forced to take a backseat in a bankruptcy, experts said.

While there’s no indication that TPG’s aggressive maneuvering is illegal, lenders say they could contest the transaction in court because it was done at a time when the company knew it was going to default on its existing debt.

“TPG will use the interim financing to advantage themselves” in bankruptcy, the peeved senior lender told The Post. “It’s very aggressive.

“Greed is what it is,” said a restructuring lawyer familiar with the issues but not working on the case, who questioned the shareholders’ “right to transfer an asset away from lenders right on the verge of bankruptcy.”
These people are the recipients of  trillions in Federal Reserve support.  Bloomberg reported on April 15th:

The Montreal-based company is discussing a $50 million loan secured by Canadian intellectual-property assets, according to people familiar with the matter. The borrowing would give the company time to explore options including potential government assistance.
Bloomberg noted PEU fear of the public learning private equity affiliates received federal support via  the myriad of federal programs:

After the government broadly excluded private equity firms from the program, dozens found ways to steer around the restrictions, often adjusting governance or ownership arrangements with portfolio companies in sectors including entertainment, fitness, sports and dermatology, the people said, asking not to be named discussing confidential arrangements.

What’s more, some portfolio companies also benefited from indirect taxpayer support after helping scores of related businesses apply for PPP loans, keeping revenue flowing, the people said.

The industry’s secret success in tapping SBA money risks stoking a new uproar in Washington. 
Did Cirque du Soleil get any government assistance after laying off 4,679 employees by video and informing them they have no health insurance via e-mail?

TPG's shifting Cirque du Soleil assets to a newly created entity and making a loan to that entity is hardly an arm's length arrangement, given TPG's 60 percent ownership.  That $50 million loan should give TPG a minor equity stake in Cirque post bankruptcy.

The PEU boys fear public backlash from their taking massive government grants and/or loans.  Why should billionaires fear the common man learning of their ramped up financial support from Uncle Sam?   Because many of us have worked for one of their portfolio companies.  Consider this Cirque du Soleil employee's experience:

Been a technician on a Vegas Cirque show for 15 years.

It was great early on. Back when the company actually cared about performers and staff. They did their best to try to make it actually feel like a family. There were maybe 10 shows max at the time, that they focused on and really paid attention to quality and morale. That’s how the company made billions of dollars.

The company started expanding, getting into various industries that had nothing to do with the shows. Or doing shows that didn’t really fit with what Cirque was known for and good at. Those experiments failed and the company suffered. Every year when upper management would go around to all the shows, we would hear an assurance that the company was going to go back to focusing on the shows. And then it didn’t happen. Again and again. Pay for technicians fell more and more behind market rate. It didn’t even keep up with inflation.

Then Guy sold off Cirque to investment companies. Everything started nose-diving. Budgets for the top-selling shows were cut by 20%, 40%, 60%. We did our best to keep up the shows, but quality went down. Performers were cut. Technicians were cut. Safety was cut. It’s amazing that no equipment had major failures.
The fight begins for control of Cirque du Soleil post bankruptcy.  Axios reported:

Cirque's existing private equity owners, including TPG Capital, offered a reorganization plan whereby they'd retain a 55% equity stake
Lenders giving up $900 million in debt is only worth a 45% stake?  That makes TPG's pre-bankruptcy move even stinkier if a $50 million loan gets them 55% of a reorganized Cirque

The greed and leverage boys will continue their PEU ways as long as politicians Red and Blue love PEU.

Monday, June 29, 2020

Carlyle Makes 13x Investment in ZoomInfo, CHK Bankrupt

The Carlyle Group and other ZoomInfo sponsors hold nearly 66% of the company's shares after an early June IPO which offered a mere 12% of ZoomInfo's common stock.  On June 4th ZoomInfo's IPO price was $21 per share.  It closed over $30 higher on Friday.  ZoomInfo is not the video conferencing Zoom, but a subscription provider of B2B sales and marketing intelligence.

It's not clear why the company has a $20 billion value when its S-1 showed the total addressable market for its services as $24 billion.  The $20 billion valuation is 66 times 2019 revenues.

The S-1 had a risk for not using non-GAAP financial measures.  A highly overvalued PEU affiliate using non-standard financial reporting, that's the greed and leverage boys.

It makes for big write ups, sometimes followed by big write downs. What will happen to Carlyle's huge holdings in Chesapeake Energy now that CHK filed for bankruptcy?   Was The Carlyle Group able to convince Robinhood gamblers to invest in CHK?

Market Realist reported:

In the first quarter of 2020, Carlyle Group exited most of its stake in Chesapeake Energy. The hedge fund sold around 864,000 Chesapeake Energy stocks. Notably, Carlyle Group was the largest institutional seller. In the fourth quarter of 2019, Chesapeake Energy accounted for 9.78% of Carlyle Group’s total portfolio of publicly traded securities.  The figure has fallen to 1.3% in the last quarter.
How many Robinhood buyers are behind ZoomInfo's nonsensical $20 billion valuation?  RH's website shows 11,426 Zoominfor shareholders.

The real Robin Hood stole from the rich and gave to the poor.  RobinHood may have enriched The Carlyle Group at the expense of the small investor.  It's a PEU world.

Saturday, June 27, 2020

Carlyle Invests in Indian Antibody Producing Pharma

Reuters reported on a late Friday evening:

U.S.-based Carlyle Group Inc has agreed to buy a 20% stake in the pharmaceutical unit of Indian conglomerate Piramal Enterprises Ltd for about $490 million, the companies said in a statement on Saturday. 
The Carlyle Group invested in Piramal which produces 50% of global antibody drug conjugate.  Antibody treatment is one method of curing people from COVID-19.

Carlyle made the deal as the U.S. and numerous states in the South and West hit record numbers of new cases on a daily basis.  The disease has a long way to go to reach herd immunity.

Until then Carlyle affiliates can help test for COVID antibodies (Ortho Clinical), assist with blood plasma collection (MAK Systems), produce antibody drug conjugate (Piramal) and ensure the maximum hospital bill for COVID-19 patients (TrustHCS).

Friday, June 26, 2020

Carlyle Flips Discounted Eggplant for Seven Bagger

Private Equity News reported:

Carlyle Group has sold UK-based software testing company Eggplant to Keysight Technologies for $330m. The firm scored a seven times return on the exit, a person familiar with the matter told Private Equity News.
The Carlyle Group bought Eggplant in 2016.   PEHub reported in January Carlyle would sell Eggplant for $385 million.  Keysight did not walk away from the deal like Carlyle did to American Express Global Business Travel.  The deal went through at a $55 million discount (14%) to prior news reports.

Wednesday, June 24, 2020

Carlyle Group to Make High Medical Bills Higher

The Carlyle Group wants to make more healthcare deals, according to co-CEO Kewsong Lee.

Two areas the firm likes include health care and technology.
In early 2020 Carlyle bought Trust HCS and MAK Systems.  A January 13th press release on the Trust HCS deal stated:

WindRose Health Investors, LLC ("WindRose"), the New York-based healthcare private equity firm, announced that it has completed the sale of substantially all of the assets of its portfolio company, Trust Healthcare Consulting Services, LLC ("TrustHCS" or the "Company"), to a healthcare joint venture established by an affiliate of The Carlyle Group and Cannae Holdings. Terms of the transaction were not disclosed.
TrustHCS is a provider of staffing and advisory services for coding, clinical documentation improvement ("CDI"), denial management, and coding education solutions. TrustHCS leverages its team of 500+ professionals to provide best-in-class solutions that enable its clients to accelerate revenue cycle, improve revenue integrity, and reduce operating costs.
Trust Healthcare Consulting Services, headquartered in Springfield, Missouri, is a provider of staffing and advisory services that improve the financial strength of healthcare organizations. The Company's services and oversight improve the reliability, integrity and security of our clients' financial health and enables clinicians, HIM, revenue cycle and clinical documentation improvement leaders gain visibility, insight and control of financial outcomes associated with every patient encounter.
Carlyle's website makes no mention of the Trust HCS deal.  JV partner Cannae's issued the following statement in November 2019:

Cannae Holdings, Inc. (NYSE:CNNE) (“Cannae” or the “Company”) today announced that it has entered into an agreement to participate in a health care joint venture with an investment vehicle advised by an affiliate of The Carlyle Group and another investor with deep health care services experience. The joint venture will focus on acquiring, integrating and operating synergistic health care services companies in the provider and payer space. 

Cannae will contribute its T-System business to the joint venture and Cannae’s joint venture partners will contribute equity capital to enable it to acquire other complementary health care services companies. As part of this effort, T-System has also entered into a definitive agreement to acquire a leading provider of coding and clinical documentation services to domestic health care providers which will be funded by the joint venture. 
The investment vehicle affiliated with The Carlyle Group will be the majority controlling shareholder of the joint venture..
Consider the impact of T Systems for citizens in Savannah, Georgia.

A few months after transitioning to T-System’s RevCycle+® service, Memorial University Medical Center’s revenue quickly increased to the numbers T-System had estimated. And, just a few months later, revenue continued to improve even further to $1,269 per patient visit, from the original baseline of $1,040 per patient visit.
$24.8 million gross annual revenue increase:
• $259 increase per patient for facility E/M charges\
• $31 increase per patient for facility procedure charges
• $502 increase per patient for observation services charges
A higher level of service was assigned for about 65 percent of the ED patients, and a lower level of service was assigned to three percent. Also, a higher level of service was assigned for about 70 percent of observation cases.

Maximizing healthcare reimbursement is a decades old game.  It got current Florida Senator Rick Scott in trouble when he was President of hospital giant HCA. 

KKR and Bain Capital bought HCA in 2006 and conducted an IPO in 2011.  KKR/Bain continued selling stock in HCA in 2013. 

KKR and HCA pair bid on surprise medical biller Envision but HCA fell away. KKR completed that deal alone.

Carlyle's new joint venture overlaps with surprise medical billing

Could T System/TrustHCS be encouraging the use of surprise medical billing? 

While Congress funneled trillions in coronavirus relief to prop up Wall Street it has done nothing on surprise medical billing.  Washington Monthly reported:

The stakes are high in this fight not only because surprise bills are so unjust, but also because it engages the most important long-term issue in health care: rising and unsustainable costs. 

Eliminating surprise billing entirely would save people with employer-provided health insurance approximately $40 billion annually. Compared to the $3.6 trillion the U.S. now collectively spends each year on health care, that is not a large amount. What makes the legislative battle over surprise billing so important is less the savings it could produce than what the fight itself represents: a dry run for broader reform. If Washington cannot deal with a problem so obviously egregious, it is difficult to envision how it could address rising costs more broadly.
Congress decided the PEU boys need that $40 billion more than citizens need relief from unjust practices. 

The Guardian reported HCA's recent PEU like strategies.

HCA is currently pushing employees to accept several concessions to pay and benefits, including wage freezes, elimination of 401k retirement contributions, and signaling the possibility of layoffs, with non-union employees already forced to accept freezes to annual wage and salary raises.
HCA received about $1bn in federal coronavirus relief that does not have to be repaid, and over $4bn in accelerated medicare payments.
Moody's recently reviewed HCA and stated:

HCA also has industry leading profit margins and makes significant investments in its key markets in order to drive future organic growth. HCA has a long track record of stable operating performance and strong cash flow
Just as Congress prioritized surprise medical billing over fair practices for the common person, HCA places profits over fair treatment of employees.

Meanwhile, private equity firms look to make hay from the Fed and Uncle Sam's cash fire hose.  Carlyle saw China scramble over the coronavirus and bought blood plasma software company MAK Systems in February.  Carlyle affiliate Ortho Clinical received federal money to develop COVID-19 antibody tests, which help with blood plasma treatment (MAK Systems).

How many $1 million COVID-19 medical bills can PEU healthcare make?

Sunday, June 21, 2020

What's Wrong with this Picture?

The Carlyle Group's stock closed Friday a mere 13 cents below its mid-December 2019 close. After not asking for financial assistance at least one private equity firm with $72 billion in AUM received federal subsidy.  It later decided it did not qualify and returned taxpayer money.  No word yet on how many private equity affiliates received federal subisidies, which continue to expand.

Saturday, June 20, 2020

Carlyle Retains Minority Investment in Golden Goose

The Carlyle Group sold it majority stake in Golden Goose on June 16, 2020.  Carlyle inked the deal mid-February before the coronavirus pandemic wreaked havoc on the global economy. In the interim Golden Goose closed some retail stores as countries tried to stem the virus' spread.

Golden Goose chief executive officer Silvio Campara has taken the proverbial bull by the horns, deciding to skip a season as the coronavirus spreads, Italy is in lockdown and stores are closed.
There's no word if Carlyle had to lower the price of Golden Goose, like many deals made before the economic free fall from COVID-19 lock-downs.  Buyer Permira did not pull a Carlyle and walk away from the deal (as The Carlyle Group did with American Express Global Business Travel).

I imagine Carlyle told Permira that Fed Chief Jay Powell's trillions in financial intervention made Golden Goose more valuable, not less.  The stinking rich got stinkier thanks to Powell's trillion dollar firehose.  Jay Powell is a former Carlyle executive, as is Fed Vice Chair Randall Quarles.

The Carlyle Group bought Golden Goose in March 2017.  In September 2018 Golden Goose makes luxury sneakers that looked anything but:  Time reported:

Italian luxury sneaker brand Golden Goose came under fire after it debuted a pair of $530 sneakers that are styled to look dingy and worn-out with duct tape accents that’s described on Nordstrom’s website as “crumply, hold-it-all-together tape.”

“[Our] company is proud to highlight its pioneering role in the booming of the distressed look, one of the current biggest trends in fashion,” the Venetian label said in a statement to Us magazine. “The duct tape reinforcements appearing on the [Superstar sneaker] style pay homage to the West Coast’s skater culture — professional skaters, who have inspired the brand’s shoe collections from the beginning, repair their shoes with the same kind of tape.”

The design is a riff on the “distressed” fashion trend, but some shoppers think that the intentional wear and tear of a pair of brand-new sneakers is in poor taste, especially when seen in the context of those whose shoes look like that because of economic depression as opposed to a style trend.
Carlyle holds a stake in Supreme, another retailer appealing to urban, skater culture.  Supreme founder James Jebbia came under fire recently for his ties to The Carlyle Group.  A Carlyle affiliate makes tear gas, flashbangs rubber bullets and other crowd control, suppression products used against. Jebbia's loyal customers.

Carlyle's golden touch remains.  Golden Goose did not fall into bankruptcy as did two private equity retailers, J. Crew and Neiman Marcus.

Summer brings what to an America losing its battle against the coronavirus while forced to wrestle with its racists underpinnings?  Recall Thomas Jefferson could have freed his slaves after a dear friend willed him the funds to do so.  Instead Jefferson innovated in the financial arena, using his slaves as collateral for a loan from a Dutch bank.  That's PEU worthy.

The young and wealthy need not worry about that.  Golden Goose encourages:

Carlyle is having a golden summer thanks to Jay Powell and Golden Goose.  Superstar is their motto.  Grapes and cherries for the PEU boys and their sponsored politicians.  Nothing for you.

Update 6-21-20:  Taylor Swift's Golden Goose shoes remain ripe for some type of symbolic act as Carlyle remains a minority shareholder.

Thursday, June 18, 2020

Carlyle Winning Under COVID-19

The Carlyle Group has several ways to make money off the coronavirus.  Reuters reported:

Private equity firm Carlyle Group Inc-backed Ortho Clinical Diagnostics said on Wednesday its COVID-19 antibody testing program received a grant of $678,000 from the U.S. Biomedical Advanced Research and Development Authority (BARDA).

The medical firm said it currently makes two COVID-19 tests - a total antibody test that detects all COVID-19 antibodies and the IgG test, which detects a specific antibody that appears in the patient's blood in the later phase of the infection and remains elevated even after recovery.
In late February Carlyle bought blood products software maker MAK Systems.  Blood plasma is one of the treatments for those ill with COVID-19.  MAK Systems is a blood plasma play.  Plasma carries the antibodies that could help sick patients recover.   

Carlyle could be both a testing and treatment play, especially since the Fed and Congress sent a fire hose of cash to keep companies from failing.  

The Carlyle Group's stock closed at $30.94 today, well off its March low of $17.08.  Fed Chair and former Carlyle executive Jay Powell rescued his brethren with promises to buy corporate bonds.  It's not clear if Powell bought bonds from any Carlyle affiliates.  I am curious if Jay's Fed bought any Ortho Clinical bonds.  

Saturday, June 13, 2020

Carlyle Group Affiliate Yashili Sickened His Child, Sent Him to Jail

Caixin reported:

The father of a girl who became sick during a 2008 tainted milk scandal in China says he will not give up his battle for compensation.  Guo Li was jailed for five years after being accused of trying extort money from Yashili International Holdings, however, a court in China’s Guangdong province overturned his conviction.  Guo, who was exonerated after serving his full prison sentence, is now seeking compensation from the courts, the police and Yashili for a nine-year ordeal which he said has left him scarred physically and mentally.

“I feel like an ant taking on an elephant,” Guo, a former interpreter, said in a telephone interview with The Australian Financial Review in English.  “My case is unusual in China. I am pressing for the full package in terms of compensation. I was wrongly sentenced to five years in prison. I was physically and mentally harmed. My daughter is sick.”
The Carlyle Group invested in Yashili just after Chinese children were sickened and killed by tainted infant formula.  Carlyle 's 17.3% ownership came in September 2009, just after Yashili accused the father of extortion   Carlyle's due diligence would have the PEU very aware of risks.

What made Guo Li so dangerous that Yashili would use the police and legal system against him?

Guo campaigned on behalf of other parents and made headlines in China.
Mr. Li was convicted in 2010.  He spent one year in police detention and another four years in the prison system.  In 2013 The Carlyle Group sold its stake in Yashili.

Based on the offer price, Carlyle’s stake in Yashili is worth $388 million, or nearly two times its original investment in 2009.
Does Supreme's James Jebbia know the Guo Li story?  I'll venture Taylor Swift learns about Mr. Li as she continues her battle with the man filled Carlyle Group.  Many are harmed in the wake of private equity ownership.  Greed does that.  

Update 6-16-20:   The City of Missoula's bad faith lawsuit against Carlyle has been delayed due to the coronavirus pandemic.  The city's attorneys say they have evidence of Carlyle Grouo fraud and malice.  Another lawsuit comes from a Carlyle hedge fund employee.  It claims Carlyle wrongfully terminated the whistleblower after complaining the firm "allowed nearly $2 billion worth of investment funds, including teachers’ and firefighters’ pension accounts, to drain down to less than $50 million without telling the account administrators."   

Saturday, June 6, 2020

Supreme Cool Under Fire for Carlyle Group Sponsorship

Inside Hook reported:

Supreme is a streetwear brand with over two decades of history that just made a $500,000 contribution to Black Lives Matter, Equal Justice Initiative and other like-minded causes.

Dig deeper into the brand, however, and you find a company with a troublesome ownership group very much at odds with the brand’s purported ethos.

As Monster Children pointed out, Supreme founder James Jebbia sold half the business to The Carlyle Group in 2017, a global investment firm with ties to the defense industry — including ownership of Combined Tactical Systems, a company that (as MC suggests) “specializes in the manufacture of military and police equipment such as tear gas canisters, flash grenades, breaching munitions (rubber bullets), and handcuffs.”
 Carlyle bought half of Supreme in October 2017.  Pitchbook noted:

Which brings us back to why a firm in the decidedly uncool realm of private equity would pursue a brand that exists at the intersection of fashion, music, sports and pop culture. 
By backing an apparel company that does things differently, Carlyle is hoping to find a different result (than the string of private equity owned retail bankruptcies). 
CNBC reported Supreme's popularity arises from youthful rebellion:

One explanation for Supreme’s popularity with young consumers — enough so to make them line up for hours at a time — has to do with the idea that the brand’s products are “emblematic of rebellious youth culture,” according to Gage.

“I would call it a brand that’s heavily integrated with art and culture that tends to drive demand through consumer desire and consumer passion as opposed to explicit marketing.
What happens when youthful rebellion realizes Supreme is 50% owned by a war profiteering private equity underwriter (PEU)?  Carlyle affiliate Combined Tactical Systems sells crowd control and suppression products to militarized police departments, as well as armies around the world.

Carlyle invested in Combined Tactical Systems in 2005, via debt and a minority equity interest.  Carlyle's press release stated:

"Under the brand name Combined Tactical Systems, develops and manufactures "less-lethal" munitions for the defense and law enforcement industries". "
With our expertise in the defense industry, we are excited about this investment and look forward to pursuing acquisitions alongside Point Lookout to grow CSI’s business," said Leo Helmers, Managing Director of Carlyle Mezzanine Partners. 

Headquartered in Plainview, New York, CSI develops, manufactures and sells its products to the U.S. armed forces and other federal agencies, state and local police departments, and foreign military and police agencies around the world
Egyptian "Arab Spring" protesters in Tahir Square felt the sting of Combined Tactical Systems teargas in November 2011.  The last week of White House protests included a mass assault of peaceful protesters with products like those made by Carlyle's CTS.

Supreme announced it will donate $500,000 in the fight for racial equality.

How will youthful protestors resolve the Supreme-Carlyle Group disconnect?

Maybe a bottle of $300 Supreme cologne will take the sting out of any lingering teargas effects.  That's Carlyle's hope.

Carlyle Buys Four Old Trailer Parks in Mesa, AZ

AZ Central reported:

A Washington, D.C.-based investor paid $230 million for four older Mesa mobile home parks on Monday, upping its stake in Arizona’s affordable housing market.

The Carlyle Group bought more than 1,000 mobile and manufactured home lots in four parks built mostly in the 1960s and 1970s, according to public real estate records.
AZBigMedia added:

The portfolio sale consists of a total of 1,583 mobile home stalls on 187 acres, for an average of $145,293 per unit.
The Carlyle Group has a history of making affordable mobile homes unaffordable. The greed and leverage boys like to work under the radar so there will be no Trump like branding for the parks.  

Mobile home parks will not be named for Carlyle founders Rubenstein, Conway and D'Aniello.  There will be no communities in honor of Carlyle's co-Presidents, no Younkinsville (Glenn) or Leesburg (Kewsong).

The average monthly cost to live in a Valley mobile home is about $700, compared with the average rent for a two-bedroom apartment of about $1,300.
How will Carlyle's purchase of high demand low income housing unfold in the Mesa area?  

Before the COVID-19 pandemic, investors were working to turn some of the parks closer in, particularly near light rail, into high-end housing developments. Longtime residents relying on the affordable rents lose their homes and often must move farther away from jobs, schools and public transportation. 
How many residents in the three 55+ mobile home communities worked for a private equity affiliate?  How many lost a defined benefit pension as a result of PEU ownership?  How many will lose their mobile home as the Carlyle Group raises rents?  

Lot rents on private-equity-owned properties have risen as high as 15% over two years
The Carlyle juggernaut is back on track, eating up corporations and real estate.  Cheap Fed money and direct U.S. bailouts are high octane fuel for the PEU boys.  

Thursday, June 4, 2020

Labor Department Opens 401(k)s for PEU Investments

CNBC reported on a federal labor initiative in the midst of a coronavirus pandemic:

Savers using 401(k) plans may soon be able to invest their retirement money in private equity, long considered strictly the province of the well-to-do.

The U.S. Labor Department issued guidance Wednesday stipulating that business owners with 401(k) plans can more safely offer certain funds with a private equity component to their employees.
Labor Secretary Eugene Scalia's former law firm has a private equity practice.  Their website states:
Gibson, Dunn, Crutcher’s Private Equity Practice represents many of the largest and most active financial sponsors, sovereign wealth funds and other investor groups around the world.
We provide a full-service solution to our private equity clients.  We handle deals ranging from venture and growth capital transactions through multibillion-dollar club deals.  In close coordination with lawyers in other Gibson Dunn practice areas, we provide a comprehensive service including:
  • Due diligence and compliance
  • Deal negotiation, documentation and execution
  • Tax structuring
  • Acquisition finance
  • Corporate governance
  • Management equity
Post-acquisition, we work with client portfolio companies on a wide range of matters, including business and financial restructurings, add-on acquisitions and leveraged recaps.  We handle private equity exit transactions, including trade sales and initial public offerings.  Because of our international reach, we are involved in some of the most complex multijurisdictional deals.
We also work closely with the fund formation teams of our Investment Funds Practice Group, providing cutting-edge sophistication in the organization of private investment funds and fund management companies, as well as other fund-related matters.
Scalia was sworn in as Labor Secretary on September 19, 2019.  That's fast work on behalf of the greed and leverage boys, major clients of his former law firm.  Secretary Scalia spoke on behalf of the change in a press release.

“This Information Letter will help Americans saving for retirement gain access to alternative investments that often provide strong returns,” U.S. Secretary of Labor Eugene Scalia said. “The Letter helps level the playing field for ordinary investors and is another step by the Department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.”  
More like PEU founders will gain access to a new, massive pot of money, courtesy once again of Uncle Sam.  

Two former Carlyle Group executives head up the Federal Reserve Bank.  Fed Chief Jay Powell and Vice Chair Randall Quarles turned Carlyle's fortunes around.   The Carlyle Group's stock price is up from $17 on March 18th to $30 today, a 76% increase.

Who knew a global pandemic would be good for the PEU boys?  In America politicians Red and Blue love PEU.

Time will reveal where Scalia ends up after his public service.  Will he go back to Gibson Dunn or officially become a PEU boy?

Footnote:  Gibson Dunn helped Carlyle buy Synagro Technologies, the firm that bribed the wife of U.S. Congressman John Conyers.

Update 6-5-20:  Stocks are set to roar due to a surprise add in jobs from Labor Department statistics.

...the Labor Department noted inconsistent classifications of workers due to pandemic-related effects meant the unemployment rate would have been about 3 percentage points higher than was actually reported.
Carlyle Group stock is up $1.50 to $31.25 a share.

Carlyle Adds 51.4% of Fortitude Re, Can Make Capital Calls on Affiliate

AIG is not American Express.  The Carlyle Group closed on its deal with AIG for Fortitude Group Holdings, a re-insurer of several AIG legacy lines.  Carlyle walked away from its deal for American Express global travel unit mid coronavirus pandemic.

Carlyle will own 71.5% of Fortitude Re, the reinsurer of $30 billion of reserves from AIG’s Legacy Life and Retirement Run-Off Lines and $4 billion of reserves from AIG’s Legacy General Insurance Run-Off Lines related to business written by multiple wholly-owned AIG subsidiaries.

SEC filings on the deal state:
AIG sold a 19.9 percent ownership interest in Fortitude Holdings to TC Group Cayman Investments Holdings, L.P. (“TCG”), an affiliate of Carlyle, in November 2018 (the “2018 Fortitude Sale”).

As a result of completion of the Majority Interest Fortitude Sale, Carlyle FRL purchased from AIG a 51.6 percent ownership interest in Fortitude Holdings and T&D purchased from AIG a 25 percent ownership interest in Fortitude Holdings; AIG retained a 3.5 percent ownership interest in Fortitude Holdings and one seat on its Board of Managers.

The approximately $2.2 billion of proceeds received by AIG at closing include (i) the approximately $1.8 billion under the Majority Interest Fortitude Sale, which is subject to a post-closing purchase price adjustment pursuant to which AIG will pay Fortitude Re for certain adverse development in property casualty related reserves, based on an agreed methodology, that may occur on or prior to December 31, 2023, up to a maximum payment of $500 million; and (ii) a $383 million purchase price adjustment from Carlyle FRL and T&D, corresponding to their respective portions of a proposed $500 million non-pro rata distribution from Fortitude Holdings that was not received by AIG prior to the closing.

In connection with the Majority Interest Fortitude Sale, AIG, Fortitude Holdings, and TCG have agreed that, effective as of the closing, (i) AIG’s investment commitment targets under the 2018 Fortitude Sale (whereby AIG had agreed to invest certain amounts into various Carlyle strategies and to make certain minimum investment management fee payments by November 2021) have been assumed by Fortitude Holdings and AIG has been released therefrom, 
Fortidue Re is obligated to invest $6 billion in Carlyle funds, which places it at risk for capital calls, in addition to management fees and dividend bleeding. 

Carlyle's cash mining sank nursing home giant ManorCare and refinery Philadelphia Energy Solutions, which went up in a giant fireball.   What harm can Carlyle do should it default on Fortitude Re? 

Update 7-8-20:  KKR will buy life insurer Global Atlantic for book value, $4.4 billion.  "The buyout group is using its own balance sheet to fund the deal, which will boost KKR's assets under management by a third, to $279bn."  How much did liabilities under management increase with the deal? 

Saturday, May 30, 2020

PEU COVID-19 Science Makes The Lancet

Would citizens be concerned if greedy math whizzes made healthcare treatment decisions?   The financial world already experienced this change.  Business Insider described Wall Street's quants:

“We do it with maths,” he says. “We buy stock market data and we analyse it. It’s like weather forecasting."

“Some of the guys who come from pure science and maths backgrounds are used to solving a problem and it works,” Patrick Boyle says. “They think they can find a formula that will perfectly describe how the market moves. That is the philosopher’s stone – it is utterly impossible.” The danger is that in only seeing numbers and patterns the human dimension is forgotten.

“I was working with the best of the best,” he says. “My bank employed the brightest engineers, chemists and scientists – and we were all working together to get richer. The chemical and physics and health industries are worse off because of what we do because I tell you this: if there was a pay bonus structure similar to what we had in the City for curing cancer, we’d have found a cure for cancer.”
Or COVID-19?  A recent study published in The Lancet concluded:

"Covid-19 patients who received the malaria drug were dying at higher rates and experiencing more heart-related complications than other virus patients. The large observational study analysed data from nearly 15,000 patients with Covid-19 who received the drug alone or in combination with antibiotics, comparing this data with 81,000 controls who did not receive the drug."
It came under fire from researchers across the globe.

This "observational study" was a retrospective review of medical records, not the result of a double blind clinical study, the gold standard for studying medication efficacy.  Data came from Surgisphere, which described itself in a press release:

About Surgisphere
The Surgisphere Corporation, founded in 2007, is creating a seismic transformation in healthcare, so that the world can become a healthier place. For medical organizations who need to measure and increase performance with precision, QuartzClinical fulfills on the promise of advanced business intelligence and connects knowledge from data in ways that empower your entire organization to make better decisions every day at every level.
The February 2019 press release stated:

QuartzClinical announced the availability of a new suite of sophisticated machine learning-powered data warehousing and clinical registry tools.

These new tools permit 24/7/365 access to mission-critical data in a secure, cloud-based environment. The data warehouse system uses machine learning and sophisticated artificial intelligence to rapidly correct errors in structured and unstructured data, thus minimizing the cost and time associated with data entry. This system is fully integrated into the QuartzClinical cloud-based healthcare data analytics platform, thus allowing a hospital to fully leverage a smart business intelligence solution within days – not months.

The new clinical registry tools can be used by any healthcare entity, including hospitals, clinics, pharmaceutical companies, and device manufacturers. These tools use a secure, cloud-based architecture to store data in a fully HIPAA-compliant manner. Machine learning and artificial intelligence algorithms power the data entry systems, thus enabling rapid acquisition of key clinical metrics with minimal effort. These new tools are expected to replace traditional data entry systems that rely upon nurses, data entry staff, and technicians. The result is higher quality data that is timelier and more comprehensive, thereby solving many of the issues faced by large database research studies.
 Surgisphere subsidiary Quartz Clinical said the following on its website:

The precision of QuartzClinical provides hyper-accurate predictive models using machine learning. Flexible enough to be applied to a single procedure, this model takes into account dozens of different variables and provides an overall accuracy of 81%. Imagine having a prediction engine that can be applied at the individual patient level to determine the chance that they will be readmitted. Extremely flexible and scalable, the model is self-learning and individualized to the particular hospital system, so the results are always customized.
Using QuartzClinical can guide individual patient care and directly impact the quality of that care while reducing costs.
The Lancet publication is not the result of a controlled experiment but a review of patient medical records.  How did they get access to 96,000 records so quickly?  Surgisphere clarified in their response to questions about their work:

The sophistication of the data retrieval requires that we link directly with the Electronic Health Records (EHRs) of our collaborating hospitals, and all information is transferred in a deidentified manner. Thus, these demands require that we work exclusively with healthcare institutions that utilize well established EHRs. 
Having worked on both the hospital and outpatient side of healthcare I know the sole use of historical medical records to conduct clinical research is highly questionable.  Electronic records can sometimes push around inadequate information faster.

It's an "after this, therefore because of this" exercise vs. an experiment, whereby an intervention is made and the impact assessed, immediately and over time. 

The question of causation vs. correlation arises.  Consider the Super Bowl stock market indicator:

The Super Bowl indicator is a theory wherein we can predict the stock market’s year end closing price based on which conference wins the Super Bowl. The theory claims that if the NFC team wins the stock market will finish the year higher, and if the AFC team wins the market will finish lower. Most of the traders I know are highly logical and analytical and are quick to dismiss the theory as hokum and of course they are right. I think. Oddly the Super Bowl indicator has an 80% success rate.
Surgisphere's Quartz Clinical "provides an overall accuracy of 81%," beating the Super Bowl indicator by 1%.

I'm not sure I want my healthcare decisions driven by the same math that fuels Wall Street's short term bets, especially if the underlying data may be suspect.  I have seen outstanding healthcare professionals perform time saving workarounds that bypassed large sections of an EHR system.  I learned which sections were unreliable and where to look for useful information on patients.

Operational definitions are critical for accurate data collection.  One might consider the founding of a company to be a specific date, say date of incorporation.  Consider Surgisphere's own representations of their founding.

Data mining found three dates ranging from 1998 to 2007 to 2008.  Texas has an incorporation date of June 2012 and Illinois records show April 2016.  Which date would Surgisphere enter into the electronic corporate record?

PEU Report found no evidence that Surgisphere is owned by a private equity firm, the normal focus of this blog.  However, I fear science is being distorted in the pursuit of massive profits, a distinct feature of the greed and leverage boys.

Update 5-31-20:  ZeroHedge ran a piece asking why "the Lancet study failed to test HQC with zinc."  The Lancet study did not test any drugs.  It data mined clinical records for information on their effectiveness.  A better representation might be "the Lancet study failed to retrospective assess the use of HQC in combination with zinc for hospitalized patients in facilities with contracts with Surgisphere subsidiary Quartz Clinical."

Update 6-3-20:   The Guardian ran a story questioning Surgisphere's data and its founder.  How could bad data mining be interpreted as a scientific experiment?

Update 6-4-20:  Three researchers retracted the study published in The Lancet.

Update 6-7-20:  New questions arise as to how Surgisphere got its data.  Bloomberg picked up the banner.

Disclosure:  PEUReport followed Peak Prosperity's Chris Martenson and his COVID-19 coverage since late January and am grateful for his many contributions.. 

Friday, May 29, 2020

PEU Healthcare Expanding

Healthcare private equity ownership brought Americans surprise medical billing.  What's next for unsuspecting citizens?   Private equity underwriters (PEU) made the news recently for wound care and kidney disease.

Wound Care

A Carlyle Group affiliate recently expanded into the wound care arena.

Tissue Analytics, an automated tech-savvy wound and predictive analytics company with skin imaging capabilities, has been acquired by software solution provider for the medical industry, Net Health.

Following the acquisition’s closure, Tissue Analytics’ AI applications will be combined with Net Health’s existing electronic health records system, WoundExpert, so that clients of the merged entity will be able to upload wound images and measurements digitally.

In 2017 The Carlyle Group and growth equity investor Level Equity, along with Net Health management, acquired Net Health, which offers cloud-based clinical documentation, practice management and billing solutions for specialized outpatient providers.

At the time of the initial Net Health deal Carlyle's press release stated:

Net Health serves healthcare professionals in 98% of the largest hospital chains as well as private practices around the country—driving workflow in more than 3,000 urgent care, wound care, physical therapy, speech and language therapy, occupational therapy, occupational medicine, employee health, and workplace medicine facilities each day
In July 2019 Net Health bought out Optima Healthcare Solutions:

Outpatient software provider Net Health on Tuesday announced a plan to acquire Optima Healthcare Solutions, expanding its presence into the post-acute marketplace.  The Pittsburgh-based Net Health positioned the move as a strategic push to extend its reach into Optima’s base of contract therapy companies, skilled nursing facilities, senior living communities, and hospices.
Skilled nursing facilities and senior living communities have been hard hit by the coronavirus pandemic.  42% of all COVID-19 deaths have taken place in nursing homes and assisted living facilities.

Kidney Disease

Floridians with Humana health insurance who have kidney disease will have their care managed by Healthmap, a private equity affiliate.  New York based PEU Windrose Health Investments took an $85 million stake in Healthmap last year.

Humana CEO Bruce Broussard has a strong private equity background, having served as U.S. Oncology's CEO under PEU Welsh, Carson, Anderson & Stowe.  Broussard partnered with WCAS and TPG Capital in a July 2018 deal for Kindred at Home, a national home health and hospice company.  He has since  expanded his collaboration with his former employer around Humana primary care sites.

The human kidney removes toxins from the body.  Private equity is toxic to America's healthcare system.  Greed and the pursuit of massive profits distort behavior.  I expect the PEU boys to inflict more grievous wounds on our healthcare system as they suck out cash for themselves and investors.  That's who they truly serve

Wednesday, May 27, 2020

Carlyle Out of Africa

WSJ reported The Carlyle Group is leaving Africa.  It's four senior executives will take over an existing Carlyle Africa fund and manage it as a separate firm.  Consider the history Carlyle leaves behind as it exits the continent.

The Carlyle Group wined and dined Libyan strongman Colonel Ghadafi's son Saif in Washington, D.C. in 2008.  Carlyle co-founder David Rubenstein visited Tripoli in 2006 and said this in 2010:

"I am very bullish on the prospects for Africa. Nothing compares with Africa in terms of economic growth as a percentage over the next decade, [partly because] it is starting from a low base."
The African Development Bank invested $50 million in a Carlyle Group fund in 2012. 

In 2013 President Obama dined with Carlyle co-founder David Rubenstein at the White House then broke bread again with Carlyle executives during a trip to Africa.

Carlyle participated in a Power Africa meeting in 2016 just after the World Economic Forum meeting in Davos, Switzerland.  Rubenstein said it would take a very long time to make modest progress on income inequality, a frequent topic at Davos.  Carlyle had two subsidiaries in African tax haven Mauritius.

Carlyle's handling of Cobalt Energy's oil assets in Angola drew the attention of U.S. regulators.

The Carlyle Group dropped fundraising for a Middle East/North Africa fund during an ebola outbreak.  Now the PEU is jettisoning a Carlyle Africa fund in the midst of a global COVID-19 pandemic. 

Update 5-28-20:  The new firm is Alterra Capital.  While distancing itself from the continent “Carlyle continues to believe Africa is an important region strategically and maintains its active presence on the continent.”