Friday, February 3, 2012

Carlyle's IPO & Liquefaction

Carlyle Group co-founder David Rubenstein said he would "liquefy" his stake in the world's premiere private equity underwriter (PEU).  To liquefy Carlyle must attract investors to their looming independent public offering (IPO).  The PEU eliminated one obstacle, by dropping its mandatory arbitration requirement for shareholder disputes. Did they also allow a board committee to set executive compensation for the triumvirate?

Carlyle's PEU model levers investor capital, borrowings/debt, annual management fees, preferred carried interest taxation, special dividends/distributions and "liquidity recapitalizations," more straightforwardly known as debt for dividends.  How firm is this foundation?

The Carlyle Group's publicly traded mortgage backed security fund, Carlyle Capital Corporation, dipped into bankruptcy in March 2008, six months before the September implosion.  Carlyle walked away from CCC, leaving shareholders empty handed.

The Carlyle Group will turn its back on 14 Wall Street, a prized real estate investment.  Will Carlyle dump this historic asset before or after their IPO? 

I did find irony in Rubenstein's "liquefy" characterization.  Analogies for financial crises include "earth shattering" and "meltdown."    Liquefaction occurs when wet, sandy soils are shaken in an earthquake.  Soil foundations turn to porridge, causing buildings to list.

If "liquefy" means monetizing PEU equity states, does that imply private equity will undergo liquefaction, turn to jelly in the next financial earthquake?  Capital calls, Carlyle shareholder serfs.  Capital calls.