Oil Spew Co-Chair "Flew" ConocoPhillips

When President Obama appointed William K Reilly as Co-Chair of his Oil Spew Commission, Reilly reluctantly took a leave of absence from the ConocoPhillips board of directors.  ConocoPhillips 2011 DEF 14-A stated:

As a consequence of his leave of absence, Mr. Reilly received no compensation during the period from July 2010 through December 2010.

Oddly, Reilly received the highest tax reimbursement of any board member in 2010. 

The amounts shown are for payments by the Company relating to certain taxes incurred by the director. These primarily occur when the Company requests spouses or other guests to accompany the director to Company functions, including Board and Committee meetings, and as a result, the director is deemed to make a personal use of Company assets (for example, when a spouse accompanies a director on a Company aircraft). In such circumstances, if the director is imputed income in accordance with the applicable tax laws, the Company will generally reimburse the director for the increased tax costs.

How does a board member taking half a year off get the largest tax subsidy from the company for personal use of corporate assets? At a 35% tax rate, which people like Reilly rarely pay, ConocoPhillips gave William Reilly nearly $20,000 in use of corporate assets.

Did any trips have to do with keeping the Gulf of Mexico and offshore Alaska open for drilling?  ConcoPhillips' website states:

ConocoPhillips plans further appraisal of the Poseidon discovery in the Browse Basin, offshore Australia, and the Tiber and Shenandoah discoveries in the Gulf of Mexico.

The company also plans to test material prospects in the Gulf of Mexico and Kazakhstan.

Reilly did his job, given the Gulf of Mexico is going whole hog, a mere twenty months after the Deepwater Horizon turned into a hellish fireball and nineteen months after Reilly's co-chair appointment.  The oilgasm is back on track.

WSJ Aids Carlyle's IPO Push

The Wall Street Journal highlighted how The Carlyle Group avoided the European meltdown. It reported:

Carlyle Group, setting itself up for a planned IPO in 2012, turned in a stronger year of investment and exits in 2011, bucking the prevailing gloom across Europe and buying companies in a range of sectors and sizes while managing a series of successful asset sales.

WSJ failed to mention on whose back Carlyle entered two European investments, RAC and Brintons.  It was employees.  Carlyle shed pension plan responsibility at both RAC and Brintons. 

WSJ charitably referred to Carlyle's buyout of Brintons:

Carlyle Strategic Partners bought upmarket carpet-maker Brintons out of administration. 

As debt holder Carlyle forced Brintons' into a prepackaged bankruptcy.  The Brintons' family may not pony up funds anytime soon for Carlyle investments, despite the "record $15 billion return to investors over the year from The Carlyle Group's global activities."  WSJ sold Carlyle from start to finish.  That should ensure reporter access.

Carlyle's Christmas in Apple Valley

The Carlyle Group's purchase of Park Water was recently approved by regulators in California and Montana.  Carlyle already has two prospective purchasers of Park Water's holdings, Mountain Water in Missoula, Montana and Apple Valley Ranchos Water Company in Apple Valley, California.  The deal is Carlyle's first venture into public water infrastructure.  Having two buyers right off, that's a Christmas PEU present.

Update 12-30-11:  Carlyle took over the company on December 20, 2011.  It's the day greed won.  Remember 12-20-11.

Carlyle Group PEU of the Year

Financial Times and mergermarket named winners of their annual Asia-Pacific M&A Awards, which recognize excellence in dealmaking across the region.

Private Equity Underwriter (PEU) of the Year --  The Carlyle Group

These awards "highlight the most outstanding advisory firms in the M&A market each year, providing them the market recognition they deserve."  Yes, the deserving Carlyle Group that foisted China Forestry and China Agritech on the world.

Edinburgh Airport: Carlyle's Next Infrastructure Deal?

The Edinburgh Airport, Scotland's largest, is up for bid in January 2012.  The Carlyle Group formed a bidding consortium, according to FT:

BAA is hoping to fetch at least £500m for the airport, which made £44m of earnings before interest, tax, depreciation and amortisation in the past year. 

How far will the £44m fall after Carlyle management fees, added interest expense and amortization of goodwill?

Update 3-9-12:  Carlyle pulled out of bidding, according to sources.

PEU Buying into Distressed Debt

When the front door closes for leveraged buyouts, private equity underwriters (PEUs) head out back.  PEUs are after distressed debt, with refinancing looming and extremely difficult to obtain.

Bloomberg reported:

Carlyle Group LP, the Washington- based private-equity firm, is in talks to buy Highland Capital Management LP’s unit that manages $3 billion in collateralized loan obligations in Europe.

GSO Capital Partners LP, the debt unit of Blackstone, became the largest manager of CLOs in Europe after acquiring Dublin-based Harbourmaster Capital Management Ltd. in early October, tripling its European loans under management to 11.5 billion euros. 

SCI reported:

Euro CMBS refi warning
Limited availability of refinancing for maturing loans will be the key threat to the credit quality of outstanding CMBS transactions in 2012, according to Moody's. A significant gap exists between refinancing needs and available financing.

When markets become distressed, PEUs go shopping, but with whose money?

"Specifically, we foresee that investment through CLOs will consolidate significantly and that there will be a broader range of investors in the high yield asset class, including credit funds, insurance companies and pension funds."

Underfunded pensions need greater returns.  Greed, spread the poison.

Rick Perry Receives Texas Retirement Pay & Salary

Texas Governor Rick Perry's compensation, courtesy of taxpayers, is $225,400, of which $133,000 is salary and $92,400 in retirement benefits,  While Social Security can't afford to pay people turning 65, Texas taxpayers gave Perry an early non-retirement bonus at age 61.  There's nothing conservative about a politician double dipping.

It's a Wonderful Carlyle

Where's Clarence the Angel when you need him?  I'd like to be reminded of the world before private equity underwriters sucked the humor from its surface.

Jon Corzine's Lyndie England: Back Office Staff

MF Global CEO Jon Corzine's story evolved over time.  Days ago Corzine claimed to be so big picture that he didn't know his firm was imploding.  Today he offered another version, telling lawmakers:

"the firm’s back-office staff 'explicitly' informed him that fund transfers made before the company filed for bankruptcy were legal."

When did back office staff become lawyers and judges?   What did MF Global's compliance officer say?  How about their board?

The Board has responsibility for providing direction and oversight for management of the Company’s business and affairs, establishing the Company’s long-term objectives and strategy while overseeing the Company’s business performance and management, including risk management. The Company’s enterprise risk management approach flows from the Board, which determines the Company’s risk appetite, and permeates through the Company via a culture that expects all employees to function as risk managers. This approach involves a strong governance structure that clearly defines responsibilities, delegated authorities for risk control as well as risk-taking and documented policies designed to identify, measure, control and mitigate risk.

Blame flows downhill, but it might not stick.

PSC Gives Approval for Carlyle to Buy Mountain Water

It's rare when a private equity underwriter (PEU) has a willing buyer for an affiliate, before the company joins the PEU family.  But that's the case with The Carlyle Group's Mountain Water, which serves Missoula, Montana.  The Missoula City Council has long wanted to buy their public water source, owned by a private company, Park Water.  Park struck a $102 million deal with Carlyle's infrastructure fund to sell Mountain Water.

Montana's Public Service Commission voted 3-2 to approve Carlyle's purchase.  For Carlyle to make its 20% annual return on investment, after three years it would need to sell Mountain Water to the City of Missoula for $176.3 million.  Watch how long Carlyle holds and how much they want for Mountain Water.  It will be telling.

Incidentally, the Missoulian called Carlyle a $160 billion investment firm.  Carlyle's website differs:

The Carlyle Group is a global alternative asset manager with $148 billion in assets under management in 89 active funds and 52 fund of fund vehicles.

What's $12 billion amongst friends?

Update 10-20-12:  Carlyle owned Mountain Water requested a rate increase of just more than 5 percent. The case is set to be heard in the next few months

Carlyle & Coke: Saudi 42 Percent Club

The Carlyle Group and Coca Cola each invested in Saudi food companies, taking an identical 42% stake.  Carlyle bought into Alamar Foods, franchise operator for Domino's Pizza and Wendy's restaurants in the Middle East and North Africa.  Coke invested in Aujan Group, a regional sweet drinks maker.

The Arab Spring means fast food and sugary sodas, not to mention fat profits for private equity underwriters and American branded multinationals. 

PEU PPD

Two vectors of greed intersected in PPD, as The Carlyle Group closed on the contract drug research firm.  The first is private equity's desire to make huge returns in health care, already prohibitively expensive.  Throw in management fees, increased interest expenses, special dividends/distributions and an expected 30% annual ROI and health care costs aren't going down.

The second manifestation of greed came from PPD's golden parachute for their CEO for three months work.  StarNews reported:

PPD said that Hill would receive $3.065 million as part of golden parachute payments to top executives and board members if the deal with Carlyle and Hellman & Friedman was consummated.

That's $1 million per month worked in retirement.   It's a PEU world.

Select Few Fill Campaign Money Trough

The Sunlight Foundation reported 17 Americans gave more than $500,000 each to political campaigns and political action committees in the 2010 midterm elections.

The donor elite of both parties tend to live in big cities — especially New York, Washington, Chicago and Los Angeles. 

It'd be interesting to see their return on investment from federal business as well as their effective tax rates.  Donations likely drive continued tax avoidance.

Seventeen political finance heavyweights garner what in return, besides Bush Pioneer and Obama Bundler status?  They train 'em well in D.C.

Are we really building a better America?

Fed Concerned Over MF Global's Internal Controls

FT reported the NY Fed approved MF Global's status as a primary dealer, despite concerns over the investment bank's internal controls.  A visit by MF Global CEO Jon Corzine helped grease the skids for approval, which came in February 2011.  Eight months later MF Global declared bankruptcy.

The Federal Reserve stated primary dealer status is not a Good Housekeeping Seal of Approval. 

Media Pandering over Carlyle's Rubenstein

Old and new media ran effusive pieces on The Carlyle Group's David Rubenstein.  Fortune called him the Best of Wall Street, citing several Carlyle bonanza cash-ins.   

Fortune may want to share their analysis with Forbes, who couldn't track the impact of those cash-ins on Rubenstein's billions.  HuffPo's Jerry Jasinowki called Rubenstein "one of our nation's most successful investors, as well as an experienced government policy maker."

I would suggest Rubenstein's billions gives him special influence in government policy, whether red or blue led.  It's the New American way.  Mr. Rubenstein, watch out for the Peuparazzi.

PEU Ships to Come In?

FT reported:

When Wilbur Ross, one of the world’s leading distressed asset investors, announced his first shipping investment on August 1, reactions within the shipping industry were mixed. Some welcomed Mr Ross’s investment as a sign that the steady recent trickle of private equity investment into the industry might turn into a flood of fresh capital.

Wilbur Ross and The Carlyle Group specialize in distressed asset turnarounds, some with lethal consequences.  Carlyle recently executed a Chinese ships deal, after one Chinese affiliate had its stock trading suspended.

FT went on to say:

Some shipping industry figures say private equity return expectations are simply unrealistic.

Note: Private equity underwriters (PEUs) are the answer to America's ills in healthcare, infrastructure and education.  How much Montana water would it take to float a Carlyle Chinese ship?

CEO Severance Packages Worsen Peformance

CEO Golden Parachutes, multimillion dollar severance packages, are associated with poorer corporate performance, according to a Tulane University study.  Chief Executive.net reported:

After putting a severance agreement in place, on average, companies underperformed the markets by 1.6 percent.  And companies whose agreement was cash-only underperformed the markets by 4 percent.

56 percent of S&P 500 companies offer severance packages.

Over half with severance packages is interesting in light of CEOs populating one another's board of directors.  Tulane Finance Professor Peggy Huang conducted the study after seeing a 175% rise in the use of CEO severance packages

1993 - 20% of firms offered golden parachutes

2007 - 55%gave severance packages

Professor Huang suggested switching from cash severance to packages with stock and options substantially represented.  Huang believes this aligns the CEO with the interests of the firm.  Following her research, that would move a firm from 4% to 1.6% under performance. 

There is another problem with her recommendation.  Did Huang forget the CEO stock option backdating scandal which ran from the early "90's to to 2004?  CEOs cheated on a widespread basis, as 29.2% of 7,774 companies engaged in
"timing manipulation" for executive stock option grants.  

CEO pay exploded in 2007.   CEO pay in 2010 rose mightily for most chief executives rom 2009. The WSJ conducts an annual study of CEO compensation, with the latest covering 2010.

Consider my CEO compensation comment from September 2007:

Free markets have American businessmen, who fund U.S. politicians, all pursuing the lowest common denominator (on worker pay/benefits), with the main exceptions CEO pay and investment manager's (PEU) compensation.

This was a six months before Carlyle Capital Corporation defaulted and a year prior to Lehman Brothers implosion.  Since then American branded banksters got their compensation back on track.  CEO severance pay evolved into the platinum kiss when packages rose to over $100 million.  The meanness and greed club looks after itself.

Update 12-15-11:  CEO pay soared in 2010.

Update 12-26-11:  Benefit cuts since 2007

UK's Circle Holdings: Hedge Fund Healthcare

Reuters reported a month ago:

CIRCLE HOLDINGS PLC (CIRC.LN), a U.K. hospital operator, said it has finalized a contract that will make it the first private company to take over the running of a National Health Service hospital, in a deal that will see Circle manage GBP1 billion in revenue over the contract's 10-year life.

Circle Health was selected as preferred partner to run Hinchingbrooke Health Care NHS Trust in November 2010. The company said it has now signed a definitive contract to deliver a full range of services at the hospital, located near Cambridge, starting in February next year.

The Guardian reported six investors control 95% of Circle Holdings, run by Ali Parsa, a former Goldman Sachs banker.  What's interesting is Parsa got the UK's Competition Committee to take up his issue of small private's being shut out.

Bloomberg reported:

Circle Holdings Ltd., a London- based private-hospital operating partnership, said today that it filed an antitrust complaint in September 2010 regarding ties between private providers and insurers that prompted the OFT’s study.

“Today’s decision will have a profound effect on U.K. health care, unleashing entrepreneurialism and unlocking innovation,” Circle CEO Ali Parsa said in the statement.

Private equity underwriters, like The Carlyle Group's David Rubenstein, salivate over health care.  Carlyle closed on PPD, the clinical drug trial company, and is bidding on Rottapharm, an Italian pharmaceutical maker.

PEUs won't decrease the cost of health care, not with added management fees, higher interest expense, dividend bleeds and targeted 30% annual returns on investment.  I find it interesting that they're the answer to global healthcare ills.  It seems they are at least one form of disease.

Mountain Water Soon to Be Carlyle's

The Carlyle Group's Robert Dove is about to land his first water infrastructure project.  The Montana Public Services Commission issued a draft order recommending approval of Carlyle's purchase of Park Water, which owns Missoula's Mountain Water.

The California Public Utilities Commission gave its approval last week.  Park is based in California and will be acquired by Carlyle's Western Water LLC.

Mountain Water Draft Final Order

Montana's PUC will vote on Tuesday.  The draft order makes reference to numerous stipulations, which can be found below:

Newpsc Doc (3)

From my reading Carlyle can still charge management fees to Mountain, tap the company for dividends and special distributions, and float debt. Carlyle expects 20% annual returns in the public infrastructure arena, down from its normal 30% annual ROI.

Mountain may have doubled in price when The Carlyle Group is ready to monetize its investment. It's nice Carlyle has a ready buyer in Missoula city government. I predict Mountain will be unaffordable by then.

Corzine Avoids Cause of MF Global Failure: Bank Run

MF Global CEO Jon Corzine slimed his way through testifying before the House Agriculture Committee.  Jon didn't know what was going on as the firm slipped from "meticulous record keeping" on customer accounts to "chaos over a two to three day period."  Oddly, Corzine said the firm was in due diligence over the prospect of selling MF Global.

A panic sale can occur when the firm's tangible assets aren't close to clients' investments and is deep underwater.  Not many buyers will take on risk they can't understand, even at fire sale prices. 

What would they have bought?  Corzine pushed MF Global to invest in repo's, of which he stated in his written testimony:

MF Global was required to recognize its profit immediately in RTMs, and the asset (the debt security) and the liability (the money owed to the Counterparty) must be “derecognized,” i.e., removed from MF Global’s balance sheet.

It sounds like Enron fiction, immediate income statement profit with off balance sheet liability.  Corzine's MF Global might as well be Greece, with its Goldman Sachs repo.

During the last hours, last days, Corzine stated there were "many, many, many more transactions than typically occur."   Customers wanted their money.  The lucky ones were at the head of the line.  It's called a bank run.

Levered up 30 to 1, it didn't take much of an equity hit, combined with imploding sovereign asset values to put MF Global into the grave.  Corzine played personal risk manager for much of his testimony.  After 19 months as CEO of MF Global, the firm no longer exists.  The buck stops nowhere for Jon Corzine.

Be sure to check out the video.   It shows how far the leadership ball has fallen.

Update 12-10-11:  Lehman used repos, which hid its imploding financial position.  MF Global shows it can happen again.

Update 7-17-19:  The SEC blessed Corzine's new levered $600 million hedge fund.

Update 8-3-19:   “Why on earth should the SEC allow him to have a license to handle customer money once again?”  Couldn't have said it better.  Corzine is back!

Corzine & Sarkozy: Neither About Transparency

MF Global's Jon Corzine pretended to be honest and accountable in testifying before Congress on his firm's thievery of customer money.  Like BP's Lord John Browne and Tony Hayward, Corzine implied incompetent underlings caused the disaster.  Dealbook reported:

"In theory, an employee may have misused customer cash after misinterpreting the chief executive’s words."

So one employee pulled $1 billion of customer assets into MF Global's trading money?  That defense is patently laughable.  Jon Corzine testified before Congress to manage his personal risk. The insider suck up included:

One congressman even congratulated the former Goldman executive on achieving considerable wealth.

Corzine's acts caused market dislocation.  Olivier Sarkozy, another insider with The Carlyle Group, offered his assessment as to how private equity underwriters can help in turbulent times:

It is very hard for traditional (debt) issuers to provide enough clarity to the public market investor to allow that investor to make an informed, risk-adjusted decision. The assets are simply too large and the leverage too great to allow those markets to operate efficiently in times of dislocation.

 Olivier says PEUs are the answer:

"That is where private equity can step in and provide that transparency because we can underwrite these balance sheets. It takes a lot of time and effort, but it is possible to do. In that context we become the most efficient source of capital to the industry and that is where the opportunity lies," he said.

Carlyle and company took $2.3 billion in FDIC cash to recapitalize BankUnited. 

BankUnited was floated in February this year and Carlyle made 2.7 times its money on its investment.

Carlyle wasn't transparent.  It wasn't until BankUnited's public offering when Carlyle revealed the extent of FDIC funding in BankUnited's recapitalization.  Carlyle held BankUnited a year before filing for an IPO.

Congress provided a stage for Jon Corzine to offer his bunk and happily ignored the huge public subsidy for PEUs via BankUnited.  The Carlyle Group's IPO revealed the firm to be a virtual nonprofit, given its incredibly low tax burden (a highly symbolic 1%). It's a PEU world for elected and greedy business people.

Carlyle's 2011 IPO Falls into 2012?

The Carlyle Group's planned independent public offering (IPO) will leak into 2012.  CNBC reported:

According to data-provider Dealogic, 79 of 119 this year’s IPOs, or 66 percent, are currently underwater.

Carlyle monetized numerous affiliates in 2011, before debt and IPO markets began to freeze.  As expected private equity had another banner year, according to Efinancial News:

In the year ending June 30, developed markets funds returned 36.9%, compared with 29.9% returned by emerging markets funds.

Add Carlyle's nearly tax free status and the PEU boys had a very good first half of the year.  The second half looks tepid, given Carlyle's assets under management fell from over $153 billion to $148 billion.  I take it some people chose not to reinvest or mark to market valuations bit into Carlyle's AUM.  Carlyle's next S-1/A might shed light on the situation.  Then again, it may not.

Update 12-7-11:  Investors may wish to check out the state of PEU frenzy deals closed between 2006 and 2008