Wednesday, December 23, 2009

PBS Gives Carlyle Affiliate More Business

Public broadcasting sent more business to Nielsen Media, an affiliate of The Carlyle Group. It will now be included in Nielsen's weekly rankings.

PBS doesn't allow commercials, but does encourage sponsorship. Nielsen ratings will be shared with the show's sponsors.

The NYTimes didn't disclose the cost of the move. It also didn't state how much government money could find its way into another Carlyle coffer.

Saturday, December 19, 2009

Name that Treasury Official

“I think going back to Glass-Steagall would be like going back to the Walkman,” says one senior Treasury official.

I'd like to know the name of that official. Is it Tim Geithner, Neal Wolin, Mark Patterson, or Adam Storch? Who might want taxpayers to cover noncommercial bank activities on behalf of their ex-employer? For a peak into how Goldman Sachs behaves, consider their latest threat:

Goldman Sachs has threatened the UK Treasury with plans to move up to 20 per cent of its London-based staff to Spain in a standoff over tax and bonuses.
Goldman & Company frequently play "the move" card. Lower tax portions of the globe regularly beckon.

Friday, December 18, 2009

Taxpayers Give $50 million to Egypt for an "Endowment"

President Obama bragged he would partner with the Middle East in his historic Cairo speech. Who knew it would include a $50 million taxpayer funded endowment, whittled down from $200 million in an earlier Senate version? Most trust funds have a stated objective. This one will "further the shared interests of Egypt and the United States." It can't get more general than that.

Who runs the endowment? Who decides how the proceeds from $50 million in American money is used? Is it a board of directors? One article says it is Hosni Mubarak's play money. I want that confirmed or denied by federal officials.

This points to Obama's main meme: public-private partnerships (PPP's). American public money will start a private Middle East endowment. President Obama can show it off at his Summit on Entrepreneurship with the Muslin World in the first quarter of 2010.

Hillary Clinton revealed foreign aid would go private. Who knew it would be a taxpayer funded endowment, directed by an Egyptian President serving a lifelong term?

How might Hosni use the money? Maybe, he'll pay off an American contractor, ARINC for its work at the Cairo Airport. ARINC is an affiliate of The Carlyle Group, which also has a Middle East/North Africa fund. Could Hosni's US taxpayer funded endowment invest in an American private equity underwriter (PEU)? Carlyle co-founder David Rubenstein knows stranger things have happened.

Watch the $50 million if you can. Egypt may call itself a democracy, but information does not freely flow. How will they spend the new endowment or America's $1.3 billion in direct military aid?

Update 11-30-14:  Mubarek, convicted of embezzling public funds, was found not guilty of murdering 239 protestors in 2011

Thursday, December 17, 2009

Pension Fund Sues Goldman Sachs on Executive Bonuses

The TelegraphUK noted:

The Security Police and Fire Professionals of America Retirement Fund is a small investor in Goldman Sachs, and is claiming the bank’s directors and executive officers are breaching their fiduciary duties to shareholders by failing to administer the company’s compensation plan in the best interest of investors.

The aim of the lawsuit is to recover billions of dollars Goldman will pay out in compensation this year.
Goldman's response is below:

A Goldman spokesman dismissed the lawsuit, saying: “It is entirely without merit and we will vigorously contest it.”
Pension funds play pay back, even as most double down on risky private equity underwriters PEU's). When the big money boys battle each other with high priced lawyers, the little guy can only watch. Where's a Coliseum when you need it? Catharsis is needed.

Wednesday, December 16, 2009

Credit Suisse to Pay $536 Million Settlement on Iran

Swiss bank Credit Suisse provided financial services to sanctioned countries, Iran, Libya, Sudan and Burma. They will pay a $536 million settlement fine. BBC reported:

US government papers filed in the latest case said: "Credit Suisse's internal communications showed a continuous dialogue about evading US sanctions spanning approximately a decade."
Dealing with terrorist regimes? This brings back memories of the Chiquita banana settlement. Chiquita hired Colombian terrorists of right and left wing stripes. They paid a $25 million fine.

Another Swiss bank, UBS had a continuous dialogue about evading US tax laws. They also settled with Uncle Sam. In a strange move, Swiss law guides non-investigations of UBS senior management. This is in direct contrast to the Credit Suisse situation. The BBC reported:

The US government has the power to take proceedings against foreign financial institutions - even for actions involving other countries - if they do some of their business in America.

Yet, the same US government will not go after UBS executives, not even ones living in America. They won't have to pull out their checkbook, much less go to jail for any crimes committed.

Team Health IPO Prices Below Expectations

Team Health's IPO priced at $12 per share vs. an expected $14 to $16. Team Health is a provider of hospital based physicians, including emergency room doctors, radiologists, and hospitalists.

The IPO provided $146.5 million. Proceeds will primarily be used to reduce debt. Team Health is owned by The Blackstone Group, a private equity underwriter (PEU). PEU's levered debt for acquisitions, especially during the go-go years of 2005-2008. Bloomberg reported Team Health has $612 million in debt. It acquired the company in November 2005 for roughly $1 billion.

This is the second IPO this week to price well below the expected range. Carlyle Group's Cobalt International Energy did likewise. Wall Street is getting finicky.

Tuesday, December 15, 2009

Abu Dhabi SWF Sues Citigroup for Fraud

Abu Dhabi Investment Authority, a United Arab Emirates sovereign wealth fund (SWF), sued Citigroup for fraudulent misrepresentation regarding its multi-year investment agreement, executed in 2007. ADAI is obligated to purchase "a total of $7.5 billion of common equity on specified dates in 2010 and 2011." The claim seeks rescission of the agreement or damages in excess of $4 billion.

Citigroup is a ward of the state, like AIG. Will Uncle Sam make Abu Dhabi whole like it did Goldman Sachs et al? And where do sovereign wealth funds sit in financial reform?

Not long ago, Sen. Evan Bayh carried their water. This is from Lou Dobbs interview with the good Senator on foreign investment in the U.S.:

BAYH: Number two, with regard to these sovereign wealth funds there needs to be some kind of rules that guarantee that their investments are made solely on economic grounds rather than for political reasons.

And you know what, Lou, I -- when we get accused of being Sinophobes or protectionists or that kind of thing.

DOBBS: Right.

BAYH: That has nothing to do with it. I would be having these same concerns if our own government were trying to get five seats on the board of CSX.

DOBBS: The same people who would be accusing you and me of being Sinophobes or whatever are the ones railing about Abu Dhabi buying the Chrysler building.

Who care? It's not a strategic asset.

BAYH: Right.

DOBBS: Buy it as you wish.

DOBBS: We thank you very much. It's also nice to see a few dollars come back for the country.

Senator Evan Bayh, thanks for being here. Good luck.

The Senator is now front and center defending for-profit health insurers. Surely oil rich Arabs are as compelling as health insurance executives to the people of Indiana. How many billions will America give Abu Dhabi? Uncle Sam already gave billions to Citigroup, directly and indirectly. How might that make its way to the UAE?

Cobalt International Energy Prices below Expected Range

Pricing for Cobalt International Energy came in below expectations. Reuters reported:

The Houston-based company sold 63 million shares for $13.50, each, and raised roughly $850.5 million. It had expected to sell shares for between $15 to $17. The funds backing the company are affiliated with Goldman Sachs & Co, and private equity firms Riverstone Holdings LLC and The Carlyle Group.
Riverstone and Carlyle settled "pay for play" investigations with the New York attorney general Andrew Cuomo for a combined $70 million.

Cobalt's underwriters are led by Credit Suisse and Goldman Sachs & Co.

Credit Suisse may pay $536 million for illegal financial dealings with Iran. IPO's and fines: who knew they went together?

Monday, December 14, 2009

Carlyle Group's China Register Ringing

Three of The Carlyle Group's Chinese affiliates went public in Hong Kong and New York. Carlyle's press release stated proceeds totaled $780 million. The affiliates are:

China Forestry Holdings Co., Ltd.
Kaisa Group Holdings Ltd.

Concord Medical Services Holdings Ltd.

China Pacific Insurance is next up, expecting $3.8 billion in proceeds. While Carlyle isn't selling any shares, it could benefit from any special dividend distributions, like one planned for affiliate Booz Allen Hamilton.

Cobalt International Energy will conduct a $1.1 billion IPO this week. At this rate Carlyle won't have any presents left to open on Christmas morn.

Next stop on Santa's corporate train? Indonesia.

Saturday, December 12, 2009

Editor & Publisher: Journalism Watchdog Closed

The Nielsen Company will close Editor & Publisher immediately. The journal chronicled the newspaper industry for over a century. The news came as a surprise to editor Greg Mitchell.

"We knew that something big was happening but we didn't think the aftermath was that we wouldn't be sold and it would be folded."

Mitchell hopes Editor & Publisher will return in another form.

"I would hope because of our special history and our role as a watchdog in journalism that it would be more likely in this case that there will be someone that's going to say, `Hey, we're not going to let this die."'

Another journal owned by Nielsen was sold:

Editor Elizabeth Guider said The Hollywood Reporter is still profitable, "just not as profitable as we'd like to be, or clearly that Nielsen wanted us to be."

The Carlyle Group purchased a chunk of Nielsen in June 2006, during the go-go buyout period. Many of those deals unraveled, with the company cramming down debt holders or declaring bankruptcy. Returning to the profit theme:

Nielsen spokesman Gary Holmes said his company is still reviewing its properties to make sure the company is focused on businesses with "the highest potential for growth."
A Carlyle Group affiliate pulled the plug on a journalism watchdog for profit's sake. It might help the politically connected private equity underwriter (PEU) maintain their good name, a key aspect of Carlyle's mission.

The news does a poor job of showing how PEU's infect global business. They are bloated Lyme disease ticks on Washington D.C.'s and the taxpayer's crotch. One mainstream media (CBS News) did enough "research" to call the Carlyle Group a "consulting firm."

Private equity underwriters are shadow bankers. Profits are the be all and end all. People, history and mission be damned. Editor & Publisher is gone, thus it can't hold newspapers accountable for PEU's free passes. It's likely a spin off benefit, but one just the same.

Update 1-16-10: Nielsen sold E&P to Duncan McIntosh.

Financial Reform: Just Plain Trying

ZeroHedge quoted Rep. Barney Frank

"The legislation will send a message that we’re trying to respond to what got us into this economic meltdown and trying to set up mechanisms to prevent future economic meltdowns”
Securitization was restarted on the taxpayer's dime. TARP leaked. The House reform bill has:

No breakup of too big to fail, not until they become "a risk"
Big loopholes for derivatives
Backstopping shadow bankers
Federal Reserve can perform secret rescues

Trying to respond?
Trying to set up?
It's just plain trying.

Carlyle Group's Verari Putters Out?

In 2004 The Carlyle Group invested in Verari Systems, a developer of blade server technology. Yesterday the firm showed telltale signs of implosion, locked doors, phones unanswered, and officials unwilling to make comments.

Should Verari officially enter bankruptcy, they'd join other imploded Carlyle ventures.

Carlyle Capital Corporation
BlueWave Partners
Hawaiian Telecom
IMO Carwash
Stallion Oilfield Services
Verari Systems (?)
Who might be impacted by a Verari crash? A company press release cites well known customers. How many have warranties?

Virgin America, Morgan Stanley, Wachovia, Akamai, Microsoft, Qualcomm, Johns Hopkins, EMC, CGGVeritas, Petrobras, Harris, Lockheed Martin, Northrop Grumman, and Sony Imageworks, as well as top universities and research institutions worldwide

Did Verari run out of gas? Carlyle may soon have lots of fuel from two IPO's, China Pacific Insurance and Cobalt International Energy. Will they refill Verari's capital tank? Only if they pull into a Connecticut rest stop. That's a long way from San Diego.

Carlyle could lose $13.3 million in Series B equity financing, a pittance compared to billions in looming IPO proceeds.

Cobalt International Energy IPO Slated for Dec. 15

The Carlyle Group hasn't seen a joyful Christmas since President Bush and Congress approved their buyout of ManorCare on December 22, 2007. Co-founder David Rubenstein advised investing in health care and energy at last week's BisNow breakfast. The public gets their chance to buy shares of Cobalt International Energy this Tuesday.

Cobalt filed for the IPO in September, but waited for better market conditions. The holiday mood might be just the trick. As for who's selling, Reuters reported:

The company was formed by funds affiliated with Goldman Sachs & Co., and private equity firms Riverstone Holdings LLC and The Carlyle Group.

Riverstone Holdings, the Carlyle Group and Riverstone's co-founder paid a combined $70 million to make a New York state pension investigation go away. They might need cash.

What can people buy in the energy sector? Bloomberg reported aspects of the deal:

1. asking investors to pay more than $1 billion for a deepwater-oil explorer with no revenue or profits

2. plan to offer 63 million shares at $15 to $17 each

3. Cobalt’s IPO will show whether investors are willing to pay 61 percent more than the median U.S. oil explorer’s so-called tangible net assets for a company that doesn’t expect to generate any revenue from oil production for at least two more years.

It looks like a premium priced bet. Welcome to the new world of finance. Wall Street or Vegas? The odds may be similar, stacked in the house's favor.

Volcker's Vampire Warning

Bloomberg reported:

Goldman Sachs Group Inc., which took $10 billion in U.S. bailout funds last year, shouldn’t get taxpayer support if the firm focuses on trading over banking, according to former Federal Reserve Chairman Paul Volcker. The “safety net” provided by the U.S. government “should not be extended beyond the core commercial-banking business,” Volcker, 82, said.
Der Spiegel had Volker's direct quote:

Let's just slice them up. I don't want them to get heavily involved in capital market activities so my view is: Hedge funds, no. Equity funds, no. Proprietary trading, no. Trading in commodities, no. And that in itself would reduce the size of the big banks. So you get some reduction in size. Equally important, you make them more manageable and easier to deal with if they do get in trouble.

It's more than egregious Goldman, the vampire squid. JPMorgan has five industry segments in addition to commercial banking. Two of them, investment banking and corporate/private equity provided 90% of the firm's third quarter income. High risk--high reward, soon to be backstopped by Uncle Sam.

Since January, Volcker, who was Fed chairman from 1979 to 1987, has called for regulators to provide government support only to banks that provide essential services like deposit- taking and business payments. He has suggested prohibiting them from owning or sponsoring hedge funds, private-equity funds or from engaging in proprietary trading.

JPMorgan handles billions in private equity and hedge funds. It has a significant market share in derivatives. Shadow bankers and unregulated products (akin to gambling) played a significant role in Wall Street's meltdown.

“I’m very interested in using this crisis as a way to avoid the next one,” Volcker said. “This isn’t any time to go back to business as usual.”

Sorry Paul, the more things change, the more they stay the same. Continued financial deform looms. There will be blood, the question is when and how much.

Friday, December 11, 2009

Dimon Nonplussed by Wall Street Reform

The AP reported:

Prodded by moderates, however, nearly half the Democrats teamed up with Republicans late Thursday to loosen restrictions on derivatives and reject tougher (financial) regulations.

Corporacrats united on behalf of their benefactors. JPMorgan CEO Jamie Dimon spoke on his bank's third quarter performance. They sold trillions in derivatives. Like Lehman Brothers, JPMorgan has enough off balance sheet items to implode the firm in another perfect financial storm. (see JPM's third quarter 10-Q filing, page 169). JPMorgan's net income by segment for the third quarter 2009 is:

Investment Bank--$1.9 billion
Retail Financial Services--$7 million
Card Services--($700) million (loss)
Commercial Banking--$341 million
Treasury & Security Services--$302 million
Asset Management-$402 million
Corporate/Private Equity--$1.3 billion

Nearly 90% of JPMorgan's profits came from two segments, Investment Banking (which includes their high market share derivative franchise) and Corporate/Private Equity.

Private equity underwriters (PEU's) want the benefits of an Uncle Sam backstop without obligations, i.e. regulations or taxing "carried interest" as income. JPMorgan PEU's with the best of them, including the politically connected Carlyle Group.

Dimon spoke to looming consumer protection regulations. He noted any regulatory cost would be paid by customers. Why do highly profitable industries like commercial/investment banking and health insurance make new consumer protection costs a 100% pass through?

Jamie Dimon has been a frequent visitor to Obama's White House, a six time guest. Which items did he discuss with President Obama, Rahm Emanuel, Larry Summers, Tim Geithner or junior staffers? Geithner gifted Bear Stearns to JPMorgan as head of the NY Fed. A Tim Geithner headed FRBNY provided a $28.85 billion loan in the BS rescue (page 160 of the 10-Q).

Congress will not ring fence commercial banks from dangerous financial products. It will not break up too big to fail. Legislation will provide the means for secret Federal Reserve Bank support for "financial holding companies" of any stripe. If you liked Uncle Sam's handling of AIG, you'll love continued financial deform.

Thursday, December 10, 2009

Federal Reserve Bank Window to Open for Non Banks?

Under House reform legislation, financial holding companies posing systemic risk would be allowed access to Federal Reserve funds. The Fed discount window is normally restricted to banks. The bill could provide crisis capital to insurance companies, hedge funds, private equity underwriters (PEU's), sovereign wealth funds, virtually any pool of private capital regulators believe threatens the system.

The Carlyle Group's Boston Private Financial Holdings received $153 million in TARP funds from Hank Paulson. Next time, they could secretly go to the Fed. Carlyle co-founder David Rubenstein hosted Fed Chief Ben Bernanke earlier this week at the Economic Club of Washington.

It's absolutely bizarre that Congress is re-erecting their financial house of cards and putting insurance on it. Uncle Sam will have the ability to backstop anybody. They frequently choose to benefit their friends. I expect that trend to continue. Lucky Mr. Rubenstein.

(From EconomicPolicyJournal & ClusterStock)

Utopia: The New PEU Frontier

Frontier Group, a St. Louis based private equity underwriter (PEU), plans to build a $1.1 billion luxury ship. STLToday reported:

The ship, which will be named Utopia, will have 200 private residences, a 204-room hotel, casino, spa, theater, night club, swimming pools and restaurants.

It plans to opulently cruise the oceans, stopping at the world's biggest parties.

The ship will cruise the world visiting events like the America's Cup, the Cannes Film Festival, the Dubai World Cup, the Sydney New Year’s Eve celebration, Wimbledon, the Running of the Bulls, the Tour de France, the Monte Carlo Grand Prix, the Olympics, Rio's Carnaval, the Hong Kong Dragon Boat Festival, and Melbourne Cup.
Owners can do so in style.

Frontier has set up sales offices on Rodeo Drive in Beverly Hills and on Madison Avenue in Manhattan. Robb said the company had commitments for about a sixth of the residences on the ship before the formal sales efforts began. The commitments include a 40,000 square-foot residence that will cost $160 million, according to Robb. He said most residences will range from $3.8 million to $26 million.

One luxury residence owner is Frank Carlucci, Chairman Emeritus at The Carlyle Group and co-founder of Frontier Group.

Building an opulent party ship for the super wealthy, this is PEU money at work. Will it make ports of call in offshore tax havens?

Will any of Frank's former Carlyle associates buy a residence on Utopia? David Rubenstein travels frequently. He might not buy, unless the ship has satellite communications and a helipad.

A PEU Utopia is coming. Is it the Ford Edsel, the canary in an economic coal mine? Their choice of the Tiger Woods Foundation as a philanthropy partner is truly unfortunate timing. He might make a better philanderer partner.

Wednesday, December 9, 2009

Carlyle Group, Riverstone Holdings NY Pension Settlements Total $70 million

New York Attorney General Andrew Cuomo announced the third settlement with Carlyle/Riverstone in his state pension fund's "pay to play" scandal.

1. Carlyle Group--$20 million
2. Riverstone Holdings--$30 million
3. David Leuschen, founder of Riverstone--$20 million

That's $70 million for Carlyle and its joint venture energy partner. First, they "pay to play," garnering $530 million in NY pension investments. Then they "pay to go away." The common denominator? Payolla.

Private equity underwriters have their sights set on infrastructure, health care, energy and education. How can they taint those segments?

Update 9-16-10 The New York settlement is up to $138 million, which makes Carlyle/Riverstone affiliated money over half of the amount.

Carlyle's Rubenstein on Debt, China

BizNow reported on their Breakfast & Smooze event. The Carlyle Group's big Smoozer, co-founder David Rubenstein, spoke. He said:

“You can't invest too much money in China,” he says, predicting it will surpass the US as the largest economy in the world by 2035.
What will China do to reduce "buyer beware"? They have no understanding of quality. Neither did Wall Street. Such paltry issues are ignored when money's flowing. Carlyle stands to net $4 billion from its investment in China Pacific Insurance.

Later David spoke to the remnants of Carlyle's game plan.

As for the most serious economic problem? Debt. There's $58 trillion of it. David says if $1 million was put in the bank the day Jesus was born and $1 million added every day after, we still wouldn't reach that amount.

Rubenstein is doing his part by cramming down Carlyle affiliate bondholders, when not losing whole companies to debt holders. Dubai World joined Carlyle in losing prize assets.

Sandra Horbach, one of David's managing directors, said offensive leverage was back. Booz, Allen, Hamilton will borrow $350 million to give Carlyle investors a fat dividend. Carlyle adds to Rubenstein's most serious economic problem.

Tuesday, December 8, 2009

PEU's Offensive Leverage Returns

Fortune interviewed Carlyle Group's Sandra Horbach, head of the private equity underwriter's consumer and retail group. She said:

We’re seeing multi-billion deals with high levels of leverage, at attractive rates. We’re back in business. We’re excited about playing offense again.
Carlyle recently announced a $350 million borrowing on Booz, Allen, Hamilton. Proceeds will pay investor dividends. That sounds offensive given the various Carlyle bankruptcies and debt cram downs.

Is it the kind of offensive leverage that bankrupted Carlyle Capital Corporation, BlueWave Partners, Semgroup, Hawaiian Telecom, Edscha, IMO Carwash, and Stallion Oilfield Services? Systemic risk anyone? Which Carlyle affiliate will fail next?

Carlyle Group's Chinese Christmas

It's a very Merry Christmas on Pennsylvania Avenue. The Carlyle Group has two Hong Kong IPO's slated for December. Both China Pacific Insurance and Concord Medical plan to issue shares on the Hong Kong exchange. Carlyle's investment in China Pacific is expected to generate a $4 billion profit for the politically connected, private equity underwriter (PEU).

Carlyle owns domestic insurance and health care firms similar to the two going public overseas. MultiPlan is a huge preferred provider organization, operating in the health insurance arena.

Profits from Carlyle's China Pacific investment could reach $4 billion (after a one year lockup). Gains would be distributed to investors and managers. Managers' investment profits are known as "carried interest." They're taxed at the capital gains rate, 15%.

The House Ways & Means Committee is currently examining "carried interest" taxation, looking to treat such profits as regular income. Private equity underwriters defeated such a move before. They unfurled their usual threat. It will cause capital flight to lower tax portions of the globe.

Few want to pay their way today, despite America's huge deficits. The race to the lowest global common denominator continues on worker pay/benefits, taxes and regulation. The power elite would have it no other way.

I believe Congress is filled with enough lackeys and club members to cover the PEU boys backside. Either that, or this is pure political theater, maybe a Nutcracker for public consumption. It won't be the first time Congress passed a law, where a workaround is already in place.

Monday, December 7, 2009

Treasury's TARP Losses

Treasury's TARP investments resulted in gains and losses. The NYT reported on big losers:

Chrysler and GM-roughly $30 billion combined
AIG-another $30 billion

In other words, the public recapitalized GM, Chrysler and AIG to the tune of $60 billion. The portion lent to banks is expected to show a slight profit. This brings the loss down to an estimated $42 billion. That could grow another $100 billion as TARP gives "new loans to banks, aid to troubled homeowners and credit to small businesses."

Sunday, December 6, 2009

Carlyle Group Going from Synagro to Shanks?

The Carlyle Group has its eyes on Shanks, the largest listed European waste management firm. Shanks operates in the UK, Belgium and Netherlands. Does the Shanks' board know about Carlyle affiliate Synagro Technologies? Under Carlyle's ownership, Synagro management bribed a Detroit City Councilwoman, Monica Conyers. She is the wife of Rep. John Conyers.

Carlyle got into trouble with the State of Connecticut for bribing public servants associated with the state's pension fund. The private equity underwriter (PEU) paid $20 million to settle a New York pension "pay to play" investigation. Riverstone Holdings (Carlyle's energy joint venture) ponied up $30 million in settlement dollars. The two Carlyle associated settlements total $50 million, simply to make an investigation go away.

Connecticut had a bad experience with Carlyle, yet provided the PEU with its first infrastructure project, 23 highway rest stops. did their due diligence miss all of the above? Will the Shanks' board ignore this sordid history?

Note: the story hit the wires Monday morning.

Update: Carlyle dropped their bid for Shanks.

Carlyle Ready to Cash In from China Pacific Life Investment

The Carlyle Group purchased 25% of China Pacific Life for $410 million in December 2005. Their 17.3% stake is currently valued at $5 billion. China Pacific conducted an IPO (Shanghai) in 2007, where Carlyle sold roughly 8% of their investment.

Another planned 900 million share IPO (Honk Kong) was withdrawn in September 2008, due to the global financial meltdown. It's now a 861 million share offering, expected to garner $3.3 billion. How much will end up in Carlyle's hands? China Pacific's stock is up 144% year to date on the Shanghai exchange.

Carlyle wants to cash in on public infrastructure, health care and education. If these sectors provide another 11 bagger, Carlyle will be most happy. Is that how you want your road, water, sewer, health care and education dollars spent? They'll gladly take it. Paying taxes on their gargantuan profits is another matter.

Friday, December 4, 2009

Terrance Watanabe: Carlyle Group Giveth, Carlyle Taketh Away

The Carlyle Group purchased Oriental Trading from Terrance Watanabe in July 2006. Mr. Watanabe lost $127 million gambling at Carlyle's other affiliate, Harrah's in Vegas. He paid $112 million, but refuses to pay 100% of his gambling debts.

The Carlyle Group should understand a 10% haircut on debt. Carlyle affiliates repeatedly cram down down bond holders for much more than a measly 10%.

Watanabe should use the going price of debt as his defense, not Harrah's loading him with booze and drugs. Carlyle's big money boys should understand debt devaluation. How might Freescale Semiconductor's debt restructuring end up? Will risky bond holders take a 50% haircut?

Thursday, December 3, 2009

Presidential Summit on Entrepreneurship for Muslim World

President Obama promised a Summit on Entrepreneurship with the Muslim world in his historic Cairo speech. The aim of the summit is:

To identify how we can deepen ties between business leaders, foundations, and social entrepreneurs in the United States and Muslim communities around the world.

The two day event will occur in the first quarter of 2010. An overview of the summit states:

It represents an opportunity to highlight and support business and social entrepreneurship in Muslim-majority countries (MMC), including their minority populations, and Muslim communities around the world.

Through this Summit, the United States seeks both to join existing efforts and inspire new efforts to promote entrepreneurship and innovation in Muslim-majority countries and Muslim communities around the world.
People can apply to attend the event. The invitation states:

Successful entrepreneurs, investors, academics, and leaders of entrepreneurship networks, non-profits, foundations, and businesses who are invested in promoting business or social entrepreneurship in Muslim communities would be excellent delegates and are encouraged to apply.
The Carlyle Group is an investor, with funds and affiliates targeting the Middle East. ARINC will host a mini-business summit at Sharm El Shaikh. The topic is airport infrastructure spending.

The upcoming Domestic and Regional Airport Summit will bring together more than 150 aviation experts debating the latest issues facing the industry. The Summit is a platform tailored for global leaders in domestic airports to discover new horizons, create robust alliances, close business deals, and foster business partnerships. The Summit is scheduled at the Savoy-Sharm Resort, Sharm Al Shaikh, Egypt, December 7-8. It is open only to senior level decision makers, chairmen, presidents, and CEOs from selected organizations.

Infrastructure is a hot topic, domestically and globally. The World Economic Forum wants someone to take on political risk for sovereign wealth funds (SWF's) or private equity underwriters (PEU's) undertaking infrastructure projects in underdeveloped countries. They made their proposal from Dubai, just three days before Dubai World postponed their debt payments. The UAE government chose not to backstop DW debt. That triggered S & P downgrades on six Dubai GRE's.

Standard & Poor's Ratings Services said it has lowered its issuer credit ratings on six Dubai-based GRE's; DIFC Investments LLC, DP World Ltd., Jebel Ali Free Zone (FZE), Dubai Multi Commodities Centre Authority (DMCC), Dubia Holding Commercial Operations Group LLC (DHCOG), and Emaar Properties PJSC
Emaar Properties Chairman closed out the World Economic Forum session, congratulating the people in the room for handling their prosperity responsibly.

Infrastructure is front and center in the U.S. A likely second round of stimulus will "front load" infrastructure spending. This will be done through public-private partnerships (PPP's), with the very same PEU's and SWF's. They should be out in force during the two day Summit on Entrepreneurship. How might they continue grabbing government green? The details bear watching.

Update: Emaar Properties dropped the most in early 2010, as Dubai World considered offering credit holders 60 cents on the dollar in a debt restructuring.

GM Board Dominated by PEU's

The General Motors board sacked Fritz Henderson after eight months at the helm. The board is stacked with private equity underwriters (PEU's), supposed turnaround or value creation experts. Never mind that Chrysler imploded under the ownership of PEU Cerberus. GM board members with a PEU/investment firm taint include:

Daniel Ackerson-The Carlyle Group

David Bonderman-TPG

Stephen Girsky-Centerbridge Industrial Partners

Kent Kresa-former Senior Advisor, The Carlyle Group

Phillip Laskawy-Director of Lazard Ltd.

Isdell Neville-Former Director of SunTrust Banks

Carol Stephenson-Director of Intact Financial Services (formerly ING Canada)
GM's future is in the hands of shadow bankers, at least at the governance level. That's where strategy and management priorities are confirmed or modified. If the board room had a glass wall, it could be an educational PEU farm.

Wednesday, December 2, 2009

Will Reuters' Carlyle Group-Brazil Story Stay Up?

Six months ago Bloomberg ran a story on The Carlyle Group investing $1 billion in Brazilian companies over a five to seven year period. It disappeared within hours. Today, Reuters reported:

U.S. private equity firm Carlyle Group [CYL.UL] plans to announce two or three deals soon in Brazil, Latin America's largest economy, co-founder David Rubenstein said on Wednesday.

The deals may be in the $100 million range, he said on the sidelines of an industry conference in Brazil's financial capital, Sao Paulo.

Carlyle goes Carnaval. Look for global corporafornication. Two Carlyle investors found their past association distasteful. Hopefully Carlyle will do better with its Brazilian bazillions.

Tuesday, December 1, 2009

Carlyle Tapping Booz

The Carlyle Group will borrow $350 million more on Booz, Allen, Hamilton. Funds will be used to pay investors $550 million.

Levering up Booz to sooth disgruntled investors? It might work. If only the angry Kuwaiti's could get a swig. Are they part of Carlyle Mezzanine Partners II or Carlyle Partners V?

Carlyle Group Made by "Arab Money," Now Angry

Funny what a $50 million loss does to some people. A prominent Kuwaiti conglomerate is suing The Carlyle Group for its total loss in Carlyle Capital Corporation (CCC). CCC imploded in March 2008. The Channel Islands based mortgage backed security fund was leveraged 39 to 1. The Kuwaiti firm's $50 million was part of that "1". FT reported:

The implosion of CCC has damaged Carlyle’s reputation in the Middle East, where the affiliate raised most of its funding, according to people familiar with the matter. It is a personal setback for Carlyle’s co-founder and chief fundraiser, David Rubenstein, a frequent visitor to the Gulf.

Arab money made Carlyle what it is,” said the head of the investment bank of one major financial institution in Dubai.

They aren't the only one suing David Rubenstein's firm for false marketing. Michael Huffington wants his $20 million back. Mr. Rubenstein approached the angry investors with an apology and promise to invest future money for fewer fees. The Kuwaiti's didn't like the offer.

NIG’s decision (to sue) came several months after a stormy meeting in Kuwait involving Mr Rubenstein and Saad Al Saad, the head of NIG and the patriarch of one of Kuwait’s wealthiest families.

The meeting was abruptly terminated after a young Carlyle staffer told the NIG executives to lower their voices, according to people familiar with the matter.

NIG was also angry that the meeting was attended by the general manager of a fund that Carlyle was in the process of launching – the Hong Kong-based Asian Growth Fund.

The Middle East and Dubai were the "it" region not long ago. How long will China last? Who else will sue for investments gone bad? Will Mr. Rubenstein improve his sales pitch to angry investors? Who will rise to David's defense? Maybe, James A. Baker, III. Baker Botts has offices in the Middle East.

BusinessWeek quoted Rubenstein on Dubai:

"Don't count Dubai out," says Carlyle Group co-founder David Rubenstein. "It has world-class infrastructure, a high-quality talent pool, and will continue to be an important financial center for decades to come."
Ever the salesman?

Monday, November 30, 2009

Carlyle Group's Whistle Blower Lawsuit regarding Sequa Corporation

An Oklahoma whistle blower said The Carlyle Group:

defrauded the United States by approving, certifying, and presenting “certain airplane engine parts as serviced according to Specifications without actually and/or fully complying with the Specification."

The qui tam lawsuit involves Carlyle affiliate Sequa Corporation and airline parts division, Chromalloy. Carlyle tried to weasel out of the suit, saying it does not do business in Oklahoma. Oddly, six of Sequa's eight board members are Carlyle Group employees. The judge denied Carlyle's motion for removal.

However, the judge found lacking the "evidence of fraud." He dismissed the case, with one caveat:

The court, however, grants the relator leave to file an amended complaint within twenty (20) days of the date of this order. It is so ordered this 16th day of November, 2009.

The whistle blower has a week to rebuild his case. Like robber baron Cornelius Vanderbilt, The Carlyle Group knows how to use the court system to their favor. Ask Dunkin' Donuts franchisees or LifeCare hospital patients post Hurricane Katrina.

Update 9-2-15:  Uncle Sam will send Chromalloy $74 million in business via Oklahoma's Tinker Air Force Base. 

Update 9-3-22:  Carlyle will sell Chromalloy to Veritas Capital. 

Sunday, November 29, 2009

World Economic Forum Met in Dubai Before DW Debt Payment Postponement

The World Economic Forum met in Dubai November 20-22 to brainstorm and prioritize solutions to global problems. The closing session is available online (for how much longer, I don't know). Most ideas orbited around globalization. I'll share a few that stuck out in my mind.

Values-the group encouraged a common language for going forward, the language of business

Role of Private Sector
-sovereign funds (like Dubai World) were touted as solutions to global infrastructure needs, however such funds won't invest long term in underdeveloped nations due to political risk. A new structure is needed to mitigate such political risks, such that sovereigns will invest. (They didn't say what that was, insurance, economic unions, governmental unions)

-the need for a global structure to handle the movement of people.

Global Health Risk Institute
-such a group would go well beyond traditional medicine in identifying health risks for populations.

Mitigating Policy Risk
-it called for the next generation of public policy machinery for leaders (code talk for what?)
Some of these ideas need revisiting in light of Dubai World's difficulties. Summit Co-Chair Mohamed Alabbar, Chairman of Emaar Properties, United Arab Emirates, made several comments at the meeting's close. He said:

The meeting was ending with hope and optimism.

The people in this room know how to deal with prosperity and challenges. We are leaders in vision and execution.

Three days later Dubai World called for a halt on its debt payments. It remains to be seen how much water this throws on the WEF's global agenda.

Update: Dubai World may offer creditors 60 cents on the dollar in a debt restructuring.

General Wesley Clark's Wind Farm Stock Options

Political blogs skirmished over generals pushing alternative energy sources, all in the name of U.S. security. They failed to note financial inducements for any general's position. Take Wes Clark, a member of the Blue team. He sits on five corporate boards, including Juhl Wind, Inc., a wind farm company. This is from Juhl's recent prospectus:

In addition, on June 29, 2009, we granted General Clark options to purchase 500,000 shares of our common stock outside of our 2008 Incentive Compensation Plan at $2.00 per share, with 166,666 options immediately exercisable, 166,667 options vesting on June 29, 2010, and 166,667 options vesting on June 29, 2011.

Clark even helped Juhl raise money for a new equity fund. I sent this information to a blue chip Blue blogger. His comment:

People sure like to cash in in Washington.

Well stated.

Low PEU Bar for Connecticut Rest Stops

The Hartford Business Journal reported on The Carlyle Group's first infrastructure deal with Connecticut regarding 23 highway rest stops:

Carlyle told officials that it had not paid any placement agents or hired any lobbyist to obtain the rest stop contract.

He (Carlyle's Daniel A. D’Aniello) wrote that the firm’s contract proposal had been submitted without collusion or fraud and that none of his firm’s subcontractors or employees had bribed or attempted to bribe a state employee in connection with the deal.

Connecticut ignored its unethical history with Carlyle:

Carlyle a decade ago figured prominently in what was known as the “Silvester scandal,” in which it and other investment firms paid lucrative “finder’s fees” to associates of the corrupt former state Treasurer Paul Silvester to secure hundreds of millions of dollars in state pension fund investments.

It failed to account for ample evidence of the firm's shady dealings. The Carlyle Group and its energy joint venture Riverstone Holdings paid a combined $50 million to the New York State attorney general to make another pension pay to play investigation disappear. What ethical papers did they sign to garner Connecticut, New York or New Mexico pension fund investments? What makes the current one better than past assurances?

Carlyle purchased Synagro Technologies in April 2007. Later that year, Synagro officials bribed Detroit city councilwoman Monica Conyers, wife of Rep. John Conyers, in regards to a sludge hauling/incineration contract. Her sentence is yet to be decided.

The Carlyle Group charges affiliates a 2% management fee. For that, they should be intimately involved with Synagro's management practices. Did they directly order the bribe or institute reward systems that encourage people to lie, cheat or steal to meet the objective?

As for other due diligence available to Connecticut, SemGroup and Vought Aircraft offer unique insights. SemGroup imploded from forward looking contracts or hedging. The staid oil pipeline firm placed risky bets on the price of oil. SemGroup's SEC filings did not mention this practice or associated risk.

Vought Aircraft industries took $35 million from the state of Texas in 2004, promising over 3,000 new jobs. None arrived. It sent Boeing 787 production to South Carolina, which offered $66.7 million. When a 787 joint venture gunked up the plane's roll out, Vought CEO Doty cited "liquidity problems." Isn't that Carlyle's specialty?

Carlyle wants Connecticut rest stops for two reasons. One, it provides a platform for rapid expansion of company owned Dunkin' Donuts stores. Pay no attention to Dunkin's lawsuit happy harassment of franchisees. Two, it allows Carlyle to approach other states with a certified win under their belt.

The Carlyle Group has a long history of "unlevel playing field" activity. William Conway, David Rubesntein and Daniel D'Aniello wouldn't have it any other way. If a piece of paper does the tilting, so be it. So much for government due diligence. Maybe Virginia can do better.

(Note to Hartford Business Journal: The joint venture is Project Service LLC. Doctor's Associates, Inc. is the JV partner. The Stamford Advocate got the name, plus more right.)

Update 11-14-15:   "Subcontractors Angered By Long-Delayed Payments For Work On Highway Service Plazas".  It turns out Project Service is the one that owed contractors big bucks.  I wonder how the delays helped Carlyle make more money.

Saturday, November 28, 2009

American Capital Crams Down Debt Holders

American Capital defaulted on $2.3 billion in unsecured debt in May. Credit default swaps did not pay as the U.S. eliminated debt restructurings as a trigger. WaPo reported a debt restructuring is in the works.

American Capital, a key financial player in the Washington region for decades, said it has reached agreements with lenders on 95 percent of its loans in an attempt to avert bankruptcy, the company said in a regulatory filing Friday.

The recession has hammered the value of the companies in American Capital's portfolio.

More than the recession hammered one American Capital subsidiary, Scientific Protein Labs (SPL). American Capital's website says it owns 87% of SPL. Scientific Protein Labs is the company that supplied a deadly heparin ingredient to Baxter. Most of the toxic material came from an SPL joint venture in China. It's not clear what role owner driven profit targets and cost cutting played in the production of deadly heparin ingredients.

American Capital is a private equity underwriter (PEU). Despite the proven financial risks to this model, the Obama team sees PEU's as the answer to America's ills from infrastructure to health care to education to banking. At least two of those sectors could be deadly.

Friday, November 27, 2009

Dubai World Credit Default Swaps at Post Lehman Levels

Credit coverage on Dubai bonds reached levels seen the week of Lehman Brothers' implosion. MarketWatch reported:

The spread on five-year Dubai World credit default swaps soared to 708.96 basis points in early afternoon activity, up 167.75 basis points from Thursday's close, according to CMA DataVision. That means it would cost nearly $709,000 a year to insure $10 million in debt against default.

Dubai Ports World is a subsidiary of Dubai World.. Reuters reported:

Dubai Ports World (DPW) five-year CDS rose to 818.5 bps from a Thursday close of 608.6 bps, CMA said.

That's $818,500 a year for coverage on $10 million in debt. The impact is UAE wide, but not at crisis levels.

Contracts on Abu Dhabi rose 23 basis points to 183.

The unease rippled slightly in the U.S. financial system. CDS prices rose 10 to 20 basis points, but nowhere near 2008 implosion levels.

(Thanks to Economic Policy Journal)

Update 9-6-10:
Dubai World's reorganization might produce 50 cents on the dollar under a forced sale scenario. Assets, previously stated as "ring fenced", are on the chopping block according to Reuters. Dubai World's CDS are roughly half the rate of a year ago, at 460 basis points. Might they soar again? Reuters projects problems with Dubai World debt to spill over into UAE sovereign debt. The question is how the Fed will wash money through the ECB to help our partner in the Persian Gulf.

Update 9-8-10 Dubai World sweetens debt offer. Bloomberg has a piece on the debt restructuring

Thursday, November 26, 2009

Dubai World Delays Debt Payment

Bloomberg reported:
Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt.
Outside the U.S. debt restructuring triggers credit default swaps.

The Dubai announcement drove up the cost of protecting emerging-market sovereign debt against default. Credit-default swaps tied to debt sold by Dubai rose as much as 131 basis points to 571 according to CMA DataVision. Contracts linked to Saudi Arabia climbed 18 to 108, while Bahrain rose 30.5 to 225, CMA prices show. Debt swaps linked to Abu Dhabi government bonds increased 18.5 to 155, Vietnam rose 39 to 252, Indonesia climbed 27 to 229 and Russia added 13 to 205.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

An Abu Dhabi sovereign wealth fund (SWF) owns 7.5% of The Carlyle Group. They purchased their chunk in 2007, in the midst of a worldwide investment spree by private equity underwriters (PEU's) & SWF's.

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG. Banks around the world have written off more than $1.7 trillion as the credit crisis trashed the value of their assets.

Swaps linked to Mubadala Development Co., a government-backed investor that announced an $8 billion joint venture with General Electric Co. last year, rose 111 basis points to 247, according to CMA.
Mubadala Development is Carlyle's 7.5% owner. Who's at risk from from the Dubai World debt service failure?

Dubai World’s lenders include Credit Suisse Group AG, HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, according to a person familiar with the situation.

The result of the latest shakedown in global financial markets?

European stocks fell the most in seven months and bonds jumped as Dubai’s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar slid to a 14-year low against the yen.
A different Bloomberg article stated:

“There is nothing investors dislike more than this kind of event,” said Norval Loftus, the head of convertible bonds and Islamic debt at Matrix Group Ltd. in London, which manages $2.5 billion of assets including Dubai credits. “The worst-case scenario will of course be involuntary restructuring on the Nakheel security that brings into question the entire nature of the sovereign support for various borrowers in the region.”

Dubai World’s assets range from stakes in Las Vegas casino company MGM Mirage to London-traded bank Standard Chartered Plc and luxury retailer Barneys New York through asset-management firm Istithmar PJSC. The Dubai government’s attempt to reschedule debt triggered declines in stocks worldwide that had been rebounding from the worst financial crisis since the Great Depression.

Recall private equity and sovereign funds being the world savior from infrastructure to banking? The Obama administration is counting on PEU's & SWF's. Ask Tim Geithner, Ray LaHood, Arnie Duncan, Rahm Emanuel, Larry Summers or David Axelrod. They'll call Dubai World a "one off," an isolated event. It's not.

“It’s very important to resolve this in a way that will minimize contagion across the region,” Matrix Group’s Loftus said.
This is not good news on Thanksgiving. However, in PEU like fashion, Dubai World will ring fence its best assets from creditors. Never the less, the market hates surprises.