Two Carlyle Group affiliates, Nielsen and LifeCare Hospitals, benefited from the stimulus bill, specifically Senator Max Baucus' provision creating a tax break for firms buying back debt. WSJ reported:
The break will allow companies restructuring debt to defer possible taxes for as long as five years, then pay the taxes over the next five years.The provision gives "businesses in many sectors a lifeline to avoid bankruptcy," said a spokeswoman for Mr. Baucus.
It was projected to cost the government $42 billion over a three year period. A law firm summarized this provision:
Most private equity investments are structured in a manner that will allow a reacquisition to be eligible for the new debt buyback provision.
The Carlyle Group repurchased debt of Nielsen in 2008. Nielsen's S-1 indicates fair value of the debt at 12-31-08 as 68 cents on the dollar. IPO proceeds will retire the debt, now valued at 97 cents on the dollar. Do they ring the tax break register twice, once for Carlyle and once for Nielsen?
Carlyle affiliate LifeCare Hospitals bought back debt in 2008 for 39 cents on the dollar. That rose to 52 cents on the dollar in 2009. LifeCare's 10-K states:
During the year ended December 31, 2009, we repurchased $11.2 million of our outstanding senior subordinated notes for $5.8 million. This resulted in us recording a $5.2 million gain, net of the write-off of $0.2 million of capitalized financing costs, on the early extinguishment of this indebtedness.Carlyle had LifeCare's $9.5 million gain in the bag when Senator Baucus offered his stimulating gift. Max Baucus, bag man for private equity underwriters (PEU's).
During the year ended December 31, 2008, we repurchased $16.5 million of our outstanding senior subordinated notes for $6.5 million. This resulted in us recording a $9.5 million gain, net of the write-off of $0.5 million of capitalized financing costs, on the early extinguishment of this indebtedness.
Update: Carlyle's Freescale purchased $85 million of discounted debt before cramming down debtholders via a restructuring. Freescale turned $2.85 billion in unsecured debt into $924 million of priority loans. Freescale gave investors 32 cents on the dollar and got a tax break to boot.
Update 2: Uncle Sam stimulated Blackstone, which refinanced,reduced or extended around $52 billion in debt across its portfolio companies.
