Wednesday, September 21, 2011

Carlyle Group: Pension Shredder or Savior?

The race to the lowest global common denominator on worker pay and benefits can be seen in The Carlyle Group's handling of Brintons Carpets, a British carpet maker.  The story begins in July, when Brintons' managing director said the company was in talks with a private equity underwriter (PEU). BBC reported:

He is expecting the deal to be finalised "within weeks" with the "lion's share" of any new investment going abroad.

Brintons Carpets has two factories in the UK, one in Portugal, one in India, and an unfinished plant in China.

PEU money enabled Brintons' jobs to shift to Asia.  BBC reported in August:

Brintons gave the news on its website and said later that 50 jobs were under threat as it restructures.

The company has been in existence for more than 70 years and 122 people work at the site
The company shed 41% of its workforce before Carlyle worked its deal.  Carlyle closed two weeks later.  BBC reported:

The deal involves the company taking on about £20m in debt and investing about £20m, Brintons said.

He added the deal would allow the firm to complete its "state of the art Chinese manufacturing site".
The Carlyle Group reneged on Brintons' pension, dumping it on Britain's Pension Protection Fund.  FT reported:

In early September, Carlyle Strategic Partners, a global fund, acquired the roughly £18m of senior debt of struggling Brintons and launched what is known as a pre-pack administration.

How much did it cost for Carlyle to buy Brintons' distressed debt?  How hard did Carlyle strong arm Brintons' creditors?  It made no deal with its pension trustee.  Carlyle simply jettisoned the plan.

Brintons is the latest company to have been tipped into, and out of, administration, minus the pension liabilities, through the acquisition of its senior debt by a private equity investor.

Discounted senior debt is an acquisition back door.  Carlyle entertained multiple strategies in shedding pension plans of new affiliates.  Here's the oxymoron, PEU's are supposed to save public pension plans by garnering high returns.  Don't look for any logical consistency in Carlyle's strategy.  Are they stronger publicly traded vs. privately held?  Is Carlyle the dumper or savior of pensions?  One factor underlies Carlyle's decisions.  Greed.

Update 1-30-14:  Carlyle plans to eliminate a handful of jobs at Brintons.  That's on top of 150 jobs cut in 2011 and 20 last year.

Update 6-28-15:  Naked Capitalism noticed PEU's predilection for pension shredding