Cerberus Four Bagger Steward Healthcare Ready to Fail?

The deal between a hell hound and Catholic hospital system resulted in an $800 million profit for Cerberus, a New York City based private equity underwriter (PEU)  Bloomberg reported:

Cerberus Capital Management, demonstrating the rewards of Wall Street’s rush into health care, made a roughly $800 million profit on its investment in struggling Catholic hospitals, records show.

In 2016, Cerberus made most of its money by selling valuable hospital property to the real estate investment trust, which then leased it back to the hospitals. That transaction enabled Cerberus to extract hundreds of millions in dividends for its investors. Medical Properties Trust also ended up owning a stake, now almost 10%, in Steward.

Medical real estate investment trusts are often the canary in the bankruptcy coal mine.  Before The Carlyle Group drove nursing home giant ManorCare into insolvency it sold the nursing home facilities to HCP.  As ManorCare paid less and less in rent HCP ring-fenced the poorly performing assets into QCP.  

ManorCare board member and former Medicare Chief Gail Wilensky promised Carlyle's buyout wouldn't harm quality.  Carlyle's shenanigans killed the whole company.  Wilensky is yet to comment.

Medical Properties Trust did more than make a one time buy of "valuable hospital property".  It propped up an imploding Steward.  WSJ reported:

When Steward ran into financial trouble, Medical Properties Trust provided it more than $700 million through a series of complex deals, the documents show. It provided $200 million to buy Steward assets valued at $27 million. Then it refinanced debts Steward owed Cerberus.

Cerberus made out, over and over in the Catholic hospital deal. 

The greed and leverage boys love accessing Uncle Sam's wallet, much of which is spent on healthcare.

The federal government provided Steward a total of $675 million in grants and loans

Steward executives wanted their share of the green, also known as a conflict of interest.  Becker's Hospital Review reported:

Medical Properties Trust formed a new joint venture with the founder of Steward, Ralph de la Torre, MD, and other executives  The real estate firm agreed to lend the joint venture $205 million so it could acquire the international assets from Steward. Financial documents show that the assets that were sold were valued at $27 million.

This is why many people hate healthcare.  Those talking "value" have their hand in the pocketbook and rely on impersonal technology to develop a "relationship."   Costs never go down, as an ever increasing amount is shifted to those with supposedly good health insurance.

PEU deal makers brought us surprise medical billing, safety net hospital closures, and billions more in healthcare costs at hospital giant HCA.  Carlyle just struck a deal for Medline, the nation's largest medical supplier.  

The greed and leverage boys ensure their financial needs are met first.  Patients are but an afterthought in a healthcare system where U.S politicians serve the investor class.   

Update 6-23-21:  Rather than ring fence Steward properties MCP went even further in by buying five former Tenet Healthcare hospitals in Florida and leasing them back to Steward.  This capital injection should enable Steward to pay rent for awhile.

 An odd story revealed the Saudi assassins of journalist Jamal Khashoggi trained the prior year at Cerberus affiliate Tier 1 Group.

PEU Tax Avoidance News

Private equity underwriters (PEU) firms have been front and center in the news.  NYTimes revealed policy making billionaires not only kept their preferred carried interest taxation, they'd neutered IRS checks making sure they paid what little actual taxes owed.

Ignored Americans have long wanted the wealthy to pay a higher tax rate.  Elected officials sided with the PEU boys over common constituents.  Consider this story from 2010.

Carlyle Group co-founder David Rubenstein’s cell phone rang as he was speaking to supporters of the Economic Club, at the Phillips Collection. He left the stage to take the call. Among those in the audience was Gary Shapiro, the consumer-electronics lobbyist who was Rubenstein’s travel companion to Japan in the eighties. After a few minutes, Shapiro recalls, Rubenstein returned and said, “That was a senator. That one call just saved us on carried interest."

The effort to remove preferred PEU taxation failed time after time.  

The Trump administration's farewell gift to the buyout industry was part of a pattern that has spanned Republican and Democratic presidencies and Congresses.  Private equity has conquered the American tax system.

Politicians Red and Blue love PEU.  The greed and leverage boys learned the importance of political connections early on and after decades of influence peddling private equity is intertwined with American government.  Obama's Health Reformer held residual, undeclared private equity holdings while ensuring health care costs remained absurd.  

The Carlyle Group's purchase of giant medical supplier MedLine will not bring down healthcare costs.  It will add huge interest costs, management fees, deal fees and intermittent dividend bleedings.   PEU healthcare brought surprise medical billing and giant nursing home/hospital bankruptcies (ManorCare and LifeCare Hospitals). 

The Biden cabinet is chock full of PEUs.  It's not clear if they will be more forthcoming about their residual PEU investments than Nancy-Ann DeParle.  

While writing this piece two Pine Island Capital directors, one former and another current, graced This Week with George Stephanopolis, Secretary of State Anthony Blinkin and panelist Michele Flournoy.  Blinken later showed up on Face the Nation.

Private equity has long tried to sell its business model as beneficial, yet that effort has been perennially unsuccessful.  Enough citizens have worked for a private equity owned affiliate and know their aversion to wage increases and benefit improvements rivals their unwillingness to pay taxes.

The American people know their wishes mean little to nothing to elected officials.

Update 6-17-21:  Outrage over the revelations are mostly aimed at the leaker within the IRS.  When will we stop shooting the messenger and act on the very disturbing message?

Watch Out for PEU Politicians

 

Propublica revealed how billionaires pay little in taxes, something that has long frustrated the general public.  Despite contributing little to public coffers these billionaires have outsized influence on public policy.  

Glenn Youngkin, Red Team candidate for Virginia Governor, spent his career with The Carlyle Group.  Carlyle founder David Rubenstein saved private equity underwriter's (PEU) preferred taxation numerous times over the last fifteen years.

Politicians Red and Blue love PEU.  That is a serious problem for the average American. 

Update 6-10-21:  George Carlin noted this long ago.  "They spend billions of dollars every year lobbying, lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else. But I’ll tell you what they don’t want. They don’t want a population of citizens capable of critical thinking. They don’t want well-informed. Well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. That’s right. They don’t want people who are smart enough to sit around the kitchen table and figure out how badly they’re getting fucked by a system that threw them overboard 30 fucking years ago. They don’t want that."

Giant Medical Supplier to Go PEU

Americans can expect healthcare costs to continue soaring.  Bloomberg reported

A consortium of private equity firms reached an agreement to buy medical supply company Medline Industries Inc. in what would be one of the biggest leveraged buyouts of all time.

The group, comprising Blackstone Group Inc., Carlyle Group Inc. and Hellman & Friedman, will take a majority stake in Medline.

The deal is worth as much as $34 billion including debt and would include a $17 billion so-called equity check.

Medline is the biggest private U.S. manufacturer and distributor of medical supplies like medical gloves, gowns and exam tables to hospitals and doctor’s offices.  

At least eight buyout firms had last month been preparing offers for the company, some lured by the prospect of getting the first shot at slashing costs and maximizing profits at a massive company in Medline that’s never been touched by another buyout firm.

Blackstone's healthcare affiliates are known for surprise medical billing.  Carlyle bankrupted nursing home giant ManorCare and long-term acute care hospital chain LifeCare.  

Carlyle and Hellman & Friedman took out pharmaceutical testing firm PPD.  Initial purchase price was $3.9 billion.  They bought themselves out in 2017 for nearly $9 billion.  ThermoFisher will buy PPD from Carlyle/H&F for nearly $21 billion.  

PPD's PEU owners stuck the company for over $2.7 billion in dividends between 2015 and 2019.  

The greed and leverage boys dance in and out of healthcare.  Added interest costs, management fees, sponsor dividends and deal fees help healthcare consume a greater and greater portion of the U.S. economy.   

Patients can expect to pay more and get worse service.  

Update 6-9-21:  The PEU boys spent "decades focusing on labor as a cost to be managed and not an asset to be invested in."  Medline employees, prepare for PEU shafting.

PEU Dividend Recaps Soar in Europe

Yahoo Finance reported:

Companies across Europe are piling on debt at the fastest pace in at least four years to enrich their private-equity owners.The controversial practice known as dividend recaps is growing as investors gorge on every credit risk.

They’re layering on extra debt to write themselves dividend checks at a time when central banks have driven borrowing costs to all-time lows to help foster a global economic rebound.

Consider the move a partial exit for the PEU sponsor..

Rising inflation could wipe out gains for buyers of low interest rate debt.  Gorging investors may want to slow their intake of highly levered debt from PEU owned companies.  I wouldn't want anyone to throw up.

Update 6-17-21:  Bloomberg echoed the PEU dividend bleeding theme.with:

Europe’s private equity patrons are piling debt onto the books of their companies to support dividend payouts, a move which could threaten these firms’ prospects when the fiscal and monetary stimulus of the pandemic era starts to wind down.

Just under 13 billion euros ($16 billion) of leveraged loan deals linked to dividend recapitalizations took place by early June -- the highest level in 14 years -- according to S&P Global Market Intelligence’s Leveraged Commentary & Data unit. That’s only 4 billion euros shy of the total for the same period in 2007, on the eve of the great financial crisis.

Carlyle's Policy Making Billionaires Invest in Government Policy Software Firm

 

 A press release stated:

NEOGOV, a market leader in public sector human capital management and policy management software, today announced a significant investment from The Carlyle Group (CG), a global investment firm, and existing investor Warburg Pincus.

In addition to expansion into new markets, NEOGOV will continue to serve as a platform for meaningful M&A in the broader government technology landscape.

A Carlyle managing director said in the release:

"We are excited to partner with Warburg Pincus, Shane, and the rest of the NEOGOV team to leverage Carlyle's deep expertise in government and technology investing and support the Company's next phase of growth."   

Carlyle cut its teeth with government security clearance firm USIS, which was later renamed Altegrity.

NEOGOV is a leader in human capital management and policy management software.  The Carlyle Group's co-founders have long been recognized as policy making billionaires.  They'll now have a stake in government policy management for the policies they've made and continue to develop. That sounds like a sweet deal.   

The greed and leverage boys shared their excitement about partnering with NEOGOV CEO Shane Evangelist.  Executives and PEU investors spend little to reward employees, keeping the spoils for themselves.  How will NEOGOV continue to skew the rewards away from the people doing the work?   My guess is NEOGOV won't measure the spoils siphoned away by sponsors.

Carlyle Adds to COVID Portfolio with Vectura Pharma

The Carlyle Group announced its intended purchase of Vectura Pharmaceuticals, a maker of inhaled medications.  Bloomberg reported Vectura is working on COVID-19 medicine.

A study on treatments for COVID-19 long hauler stated:

“long-haulers” or individuals with Long COVID – experienced symptoms and complications beyond the initial period of acute infection and illness like difficulty breathing or pulmonary diffusion abnormality, for months following the onset of infection. For asthma sufferers with known or suspected COVID-19, breathing difficulty can be particularly debilitating making finding treatments that can be conducted safely at home an additional concern. 

BioSpace reported:

While there are a myriad of symptoms associated with the illness often referred to as long COVID, including brain fog and fatigue, a large number of the therapies currently in development are geared toward the lasting lung fibrosis and respiratory problems.

Seeking Alpha stated:

Vectura makes drug delivery solutions for inhaled pharmaceuticals. It has 13 key inhaled and 11 non-inhaled products marketed by partners with global royalty streams, and a "diverse partnered portfolio of drugs in clinical development."

The company's in-market products include Seebri, Breezhaler and Neohaler, a DPI device and bronchodilator; AirFluSal Forspiro for the treatment of asthma and chronic obstructive pulmonary disease (COPD); Breelib for the treatment of pulmonary arterial hypertension; Relvar Ellipta/Breo Ellipta that is used in treating asthma and COPD; and Incruse Ellipta, Anoro Ellipta, and Trelegy Ellipta for the treatment of COPD. It is also developing VR315 (US) for the treatment of asthma and COPD.In addition, the company offers dry powder inhalers, pressurized metered dose inhalers, and nebulized devices.

Carlyle built a robust COVID-19 portfolio since February 2020.  Vecture appears to be its latest addition. 

Vectura has a mere $5.7 million in debt and employs 502 people.  These can change dramatically after private equity underwriters take over.  The greed and leverage boys have plans to profit handsomely from Murano Bidco and  COVID long haulers.