Tuesday, April 7, 2009

Flipping Companies, PEU style

The Carlyle Group purchased Hawaiian Telecom from Verizon in 2005. The deal sunk HT deep in debt. The firm declared bankruptcy in December 2008. Yet, Carlyle joined with KKR, another private equity underwriter (PEU), to bid on another chunk of Verizon.

Verizon's purchase of Alltel requires a portion of its mobile network be sold off. Alltel was owned by Goldman Sachs and TPG, yet another PEU.

What's with all the corporate flipping? It's similar to home flipping. Buy a pig, put some lipstick on it, and mark it up. How long before the new mountains of debt take the buying company down? If it does, the PEU boys know how to settle up with credit holders for pennies on the dollar. Uncle Sam has nary a clue. But the government is learning how to sell chunks of AIG on the cheap, while providing debt financing.