Motley Fool & MSN Offer PEU Infomercial

"Private Equity is Good for America" ran Friday on MSN and The Motley Fool.
 
Steve Judge, chief spokesman for private equity underwriters (PEU's), authored the puff piece.

Guest contributor Steve Judge is the president and CEO of the Private Equity Growth Capital Council based in Washington, D.C.

Frankly, I like my name for the PEU professional association.  It drives home the association's key themes:

Private 

Equity

Capital

Knowledge

Executed

Responsibly

It's a PEU world.  There are many PECKER stories embedded in this blog.

Update 4-1-12:  The Carlyle Group's Robert Easton will chair the British Private Equity & Venture Capital Association, a PEU trade body

Obama's PEU Bryson to Speak at Ex-Im Bank Meeting

Commerce Secretary and former private equity underwriter (PEU) John Bryson will give remarks during the upcoming Export-Import Bank meeting.  The session will include speed dating rounds for "U.S. exporters and international buyers to network and engage in potential deal making."

Matchmaking goes beyond suppliers and sellers. 

This year we are focused on creating the opportunity for U.S. exporters to gain a competitive edge overseas by meeting face to face with potential foreign investors."

This is also how the U.S. plans to grow its population to 400 million people, despite low organic population growth.  American leaders are counting on immigration.  Who better to bring in than foreign investors?

Bryson is charged with introducing Chicago Mayor Rahm Emanuel, President Obama's former Chief of Staff.  Rahm made his fortune working for a private equity underwriter, while serving on Freddie Mac's board.  

The Ex-Im Bank meeting is a ripe opportunity for private capital, which loves public subsidy and backstopping.  The usual suspects will speak. 

Carlyle Bulges PQ Corp's Debt

Standard & Poors rated PQ Corporation's planned debt refinancing and it reveals much about private equity underwriter's financial tight rope walking. Consider the following points:

• Adjusted debt to EBITDA remained high at about 7.2x as of Dec. 31, 2011, higher than our expectations at the rating of adjusted debt to EBITDA of about 6x

• The company has little cushion at the current ratings for even temporary declines in earnings that could increase leverage levels.

• In addition, we believe high levels of debt maturing in 2014 would be an increasing credit risk if business conditions deteriorate, despite the immediate expected improvement in the company's debt maturity profile because of the proposed transaction.

• Our ratings on PQ Corp. reflect the company's "highly leveraged" financial profile (as our criteria define the term), including very aggressive financial policies; and its "fair" business risk profile.

• PQ Corp.'s highly leveraged financial profile and ownership constrain its ratings. The Carlyle Group is the majority owner of PQ, with financial policies that we characterize as very aggressive.

• We view large debt maturities of over $1 billion in 2014 as a credit risk and expect that management will be proactive in refinancing these maturities.

Proactive in refinancing?  Carlyle shifted $200 million from 2013 into 2014, increasing the bulge in the belly of the snake.  Multiply Carlyle's aggressive financial policies times 1,000 and systemic risk rears its ugly head. 

Carlyle Courts China's Social Security Fund

China Daily reported:

The National Council for Social Security Fund, China's largest limited partner, has only invested 2.2 percent of its money into the venture capital and private equity sectors, and there is ample room for growth, said Wang Zhongmin, vice-chairman of the SSF, on Wednesday. 

"Under the rules, up to 10 percent of the social security fund can be used for venture capital and private equity investment, and the ratio at the end of 2011 was only 2.2 percent," Wang said. 

The usual suspects want a piece of this potential four bagger investment increase:

Leading private equity companies, including Blackstone Group LP and Carlyle Group, are seeking cooperation with the SSF.

The world loves PEU's, private equity underwriters.  Greed has everyone chasing return.

John Mack Goes PEU

Former Morgan Stanley Chair and CEO John Mack joined KKR as a senior advisor.  He joins Ken Mehlman, former Republican National Committee Chair, at KKR. 

Mack missed KKR's $4.25 billion cash bleed from HCA.  Maybe he can get in on their next healthcare profitgasm.  PEU's are slated to save the world for both the Red and Blue political teams. That's ironic, given Mack's role in nearly destroying the world in September 2008.

PEU Arcapita Declares Bankruptcy

Arcapita declared bankruptcy, a rare move for a private equity underwriter (PEU).  Private equity consistently states it poses no systemic risk.  Consider Arcapita's description:

Arcapita's private equity team operates out of its offices in Atlanta, London, Singapore and Bahrain. Arcapita acts as a principal and arranger in the acquisition of controlling and non-controlling interests in established companies throughout the world with an emphasis on the United States, Europe, the Middle East and India, targeting growth-oriented private equity acquisitions with a total transaction value between $50 and $500 million.

The firm is global in nature, so Arcapita's failure isn't due to unique features of the Bahrainian economy.   The firm's investment strategy sounds like many PEU's:

Arcapita focuses on five target sectors where it has built up industry knowledge and a successful track record:   healthcare, energy, business services, industrial and consumer sectors.

It seems Arcapita made the mistake of investing heavily in the buyout boom and is unable to refinance debt associated with those deals.

Of Arcapita's twelve holdings, eleven were done before the September 2008 financial crash.  That means frothy prices and unencumbered bond covenants.

Dealbook reported:

Arcapita began discussions about its $1.1 billion credit line three weeks ago, hoping to extend it by three years, but could not reach agreements with “certain nonbank creditors.”.

Despite many investors from tax havens like the Cayman Islands, Arcapita chose Southern New York for its bankruptcy filing, despite eight of the PEU's top ten investors being out of the U.S.

Now that it is in Chapter 11 protection, Arcapita is hoping to use American bankruptcy laws to complete the restructuring of its debt.

Arcapita's press release blamed a few nonbank creditors:

The actions of certain non-bank creditors have precluded Arcapita from reaching a consensual resolution before the March 28th maturity date.

Were any nonbank creditors fellow PEU's?  Did a PEU cramdown a PEU?  Like hyenas, they'll fight for Arcapita's carcass.  Look for systemic risk in Brunei, Bahrain and the Caymans.  London and Luxembourg. 

HD Supply Bonds Not Registered in U.S.

PEU owned HD Supply is floating at least $2.625 billion in "covenant lite" bonds outside U.S. jurisdiction, according to SEC filings. 

The Notes will be offered in a private offering exempt from the registration requirements of the United States Securities Act of 1933, as amended (the “Securities Act”). The Notes will be offered only to qualified institutional buyers pursuant to Rule 144A and to certain persons outside the United States pursuant to Regulation S, each under the Securities Act.

The Notes will not be and have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

I smell a liquidity recap, more accurately called "debt for dividends" or "dividend bleeding."  That's one PEU odor.  (PEU stands for private equity underwriter)

Update 4-1-12:  U.S. regulators warned banks on issuing "covenant lite" junk bonds for PEU's.  Carlyle beat them to the warning punch by offshoring the issuance.

Carlyle Sets Up HDSupply Dividend Bleed?

Bloomberg reported:

HD Supply Inc., the industrial distribution company partly owned by Carlyle Group LP, Bain Capital LLC and Clayton, Dubilier & Rice LLC, is seeking to refinance both its asset-based credit line and senior secured term loan facility.

In addition to the refinancing the company is marketing a private offering of first-lien notes due 2019 and second-lien notes that mature in 2020, Atlanta-based HD Supply said today in a statement.

Proceeds from a new covenant-lite term loan B, along with drawings under a new $1.5 billion asset-based revolving line of credit and the new debt, will be used to refinance the company’s 12 percent senior notes due in 2014

HDSupply's 10-K stated:

The Senior Secured Credit Facility contains various restrictive covenants including limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions.

The 12.0% Senior Notes contain various restrictive covenants including limitations on additional indebtedness and dividend payments and stipulations regarding the use of proceeds from asset dispositions.

Carlyle's held HDSupply since 2007.  That's a long time to constrain a liquidity recap.  When it blows, it could be Macondo like.  Watch out for falling black gold.

Update 3-27-12:  HD Supply sold its Industrial Pipes division for $470 million.  Ramp up the monetization!

Carlyle Group: The Greed Side of Sustainability

Carlyle co-founder David Rubenstein told WSJ how he preyed for cash.:

If we take a look at a company and say it will take us 10 years or 15 years to improve the environmental sustainability of the company, we're probably not going to make an investment that will take 15 years to be paid back.

But if we can look at something and say, "If we made some improvements in the environmental area or the sustainability area, and if we could make our money back in two or three years," then of course we would do that.

Private-equity firms typically hold things for four to six years, because often our investors want to recycle and get profits back in that period of time.

Sustainability that turns into Carlyle Cash is all that matters.  Rubenstein said it clearly, albeit in a quirky way:

Einstein famously said, "e equals MC squared." In my view what we should say is "S equals MC squared." Sustainability equals more cash flow. And if you are willing to put in the time to improve the sustainability principles of a company, you can in fact make more money..

My guess is Einstein would want no association with private equity, known masters of manipulation.

Anyone who doesn't take truth seriously in small matters cannot be trusted in large ones either.

That's our PEU world, full of non-truths.

Selling Carlyle's PEU IPO

Who knew it would take 21 investment banks to push $100 million in Carlyle Group equity?  It must be one huge stinking pile of PEU, designed to benefit Carlyle's co-founders.

Development Banks Go African & Latin: PEU Party Time

Western development banks, backed by western governments, look to diversify by investing in international developing markets.  Financial News reported how private equity underwriters (PEUs) benefit:

A range of industry players, including US giant Carlyle Group and 8 Miles, the vehicle set up by former pop artist and campaigner Bob Geldof, are raising funds dedicated to Africa, while 3i Group, Hamilton Lane and Advent International are among the firms to have expanded their presence in Latin America in the past 12 months.

Development finance institutions are backed by North American and western European governments that invest in emerging markets through private equity, real estate infrastructure, debt and equity investments. They are the most long-standing backers of private equity within the African continent.

Two other features in the piece are worth noting.  First:

DFIs are typically “for-profit” organisations, but any returns made are ploughed back into future investments rather than providing governments with dividends. 

All risk, no reward.  That fits with the 2008 financial meltdown where profits are privatized and losses socialized.

Second:

A number of private equity firms are keen to ensure they are not seen as using tax havens to avoid paying tax. 

How long can PEU's benefiting from government largess use tax havens?  Peruse through Carlyle's eleven pages of subsidiaries, many located in well known tax havens.  The Cayman Islands houses nearly 150 Carlyle Group subsidiary corporations.

This fact is never mentioned when reporters or President Obama fawn over David Rubenstein, Carlyle's most public co-founder.  Did President Obama raise his tax haven concern at the January 2011 State Dinner, where he invited Mr. & Mrs.David Rubenstein?  Doubtful, given Rubenstein's visit was a follow up to a December 2010 event:  President Obama gave a shout out to Rubenstein:

None of this would be possible without some people who have put great effort into this evening -- David Rubenstein, Michael Kaiser, the Kennedy Center trustees, and all the people who have made the Kennedy Center such a wonderful place for Americans of all ages to enjoy the arts.

There's a huge difference between Obama's campaign rhetoric and delivering for the Government Corporate Monstrosity, Eisenhower's MIC on trillions in federal steroids..

Note:  The Carlyle Group's 2011 Income before Provision for Income Tax was nearly $1.2 billion.  Carlyle paid $28.5 million in income taxes to Uncle Sam, a rate of 2.4%

Rahm & Rubenstein to Speak at Ex-Im Bank

Chicago Mayor Rahm Emanuel and Carlyle co-founder David Rubenstein will speak at the Export-Import Bank's Annual Conference in mid April.

Plenary Speakers

• President Bill Clinton, Founder, Clinton Foundation and
  Clinton Global Initiative
• Samuel Allen, Chairman and CEO, Deere & Company
• Scott Davis, Chairman and CEO, UPS
• Rahm Emanuel, Mayor, City of Chicago, Illinois
• Ellen Kullman, Chairman of the Board and CEO, Dupont
• Andrew Liveris, President, CEO and Chairman, Dow Chemical Company
• David Rhodes, President, CBS News
• David Rubenstein, Co-founder and Managing Director, The Carlyle Group
• Jeffrey D. Sachs, Director, The Earth Institute, Columbia University
• Richard J. Tobin, President and Chief Executive Officer, Case New Holland
• Robert Wolf, Chairman, UBS Americas

The last time the news had Rahm and Rubenstein at the same place it was D.C.'s Blue Duck Tavern, with Rahm President Obama's Chief of Staff.

Given the Ex-Im Bank's meeting is in D.C., this pair could reprise their 2009 dinner.  Who's dangling what for whom, given this pair are quintessential greed/power players?

Update 3-17-12:  Rahm is consistent in who he serves.

Carlyle Group Reseller Subtly Pushes Carlyle IPO

The CEO of Partners Group Holding AG advised Carlyle Group co-founders to keep their IPO simple and understandable.

"Be very transparent with potential shareholders, talk them down when there is a feeling that the market is exaggerating and people overestimate the future fees potential and vice versa "

It's way too late for that.  How will Carlyle's distribution of a record $19 billion to investors in 2011 impact earnings in the future?

Do future Carlyle shareholders know they have to pony up for Carlyle founders' tax increases?  The PEU term for such a subsidy is "tax distribution."  How transparent has Carlyle been with its 18 investment banks pushing Carlyle's IPO?  Ooops, the number is now 21.  Twenty one investment banks to push a $100 million IPO offering?  It must truly reek.

Note:  Partners Group is an approved secondary buyer/reseller of Carlyle's future PEU fund.  Carlyle will charge an administrative fee on such transactions.  Did Partner's CEO declare his conflict of interest to Bloomberg?  Such practice is so passe.

Carlyle's New Fee: Secondary Sales Tax

Bloomberg reported via SFGate:

Carlyle Group LP, the private equity firm planning to go public this year, is making its next fund more liquid by offering to help investors exit their stakes early if they wish.

The firm, based in Washington, will give clients the chance twice a year to sell all or part of their stakes in Carlyle Partners VI LP, according to a private placement memorandum, a copy of which was obtained by Bloomberg News. The firm is attempting to raise $10 billion for the fund.

Why the need to sell PEU stakes?  

Stock market declines (during the financial crisis) sent less-liquid private equity holdings over investors' target allocations, making it more difficult for them to meet capital calls from fund managers.

The Carlyle Group made $681 million in capital calls to CalPERS.  Fortunately, CalPERS ponied up, something Carlyle refused to do with Carlyle Capital Corporation, its first publicly traded entity.  CCC went bankrupt.

Who wants to buy stressed PEU holdings?  It's Goldman Sachs Private Equity Group, Credit Suisse Group AG, Coller Capital Ltd., Landmark Partners, Partners Group AG,and Carlyle itself, indicating it may also purchase as much as 33 percent of each available interest.

This program may well be a lick and a promise, aka puffery.

Secondary buyers can exit the program any time, and Carlyle can terminate it at any point, the firm said.

It may depend on how much ka-ching it earns for Carlyle:

The matching program limits the amount of interests that can be sold in any six-month period to 5 percent of the fund's commitments. Buyers can hold no more than 15 percent of commitments to the fund, and sellers are required to pay an administrative fee to Carlyle.

It's the golden age of private equity.  I expect the antidote for America's ills may be toxic in and of itself.  .

Carlyle Conducted Debt for Dividend Pre-IPO

Bloomberg reported:

Carlyle Group LP (CG), in a transaction nine months before it filed to go public, saddled itself with debt to pay owners including William Conway, Daniel D’Aniello and David Rubenstein a $398.5 million tax-deferred dividend.

It's called monetization, which involves adding millions to Billionaires' accounts.  Guess who bears the burden?

The deals, which echo the dividend recapitalization private equity managers use to extract cash from the companies they acquire, leave Carlyle’s future shareholders with the cost of servicing the debt. 

It's the DBD way.

By financing the dividends with debt, Carlyle’s founders can receive the full amount without facing an immediate tax bill, and without having to sell shares in the IPO. Under Internal Revenue Code regulations for partnerships, the owners can defer paying taxes on the distribution until the debt is retired.

Sweet!  Recall that President Obama wants private equity to solve America's infrastructure ills, as well as heal our ailing healthcare system.   They'll milk those for cash, just like they did with their company.

Update 2-18-13:  Carlyle co-founder William Conway podcast on dividend recapitalizations, i.e. debt for dividends.  

Tracking Carlyle's Billionaire Co-founders

Forbes came out with its latest global billionaire list, which reached an all time high of 1,226 billionaires.  The Carlyle Group's three co-founders came in at 418. Each of the three had an estimated net worth of $2.8 billion.  Forbes estimated all three with the same net worth in every period except one, March 2011.

It estimated David Rubenstein at $2.6 billion, but suggested William Conway and Daniel D'Aniello had $400 million less, coming in at $2.2 billion.  Oddly, while the cofounders' net worth see-sawed, Carlyle's assets under management soared.

Each co-founders net worth fell by over $1 billion in the September 2008 financial implosion.  Carlyle's assets under management fell by $5.4 billion from $91.5 to $86.1 billion.  Carlyle scrambled for cash, receiving $681 million in capital calls from CalPERS.  Good times returned for Carlyle, in part due to Uncle Sam's TARP support for Boston Private Financial Holdings and the FDIC's $2.27 billion cash gift for BankUnited.  The Palm Beach Post finally took note.

Carlyle's co-founders are collectively known as the DBD's.  Several DBD funds are listed with the SEC and these could be seen as a proxy for the founders' wealth.

DBD Cayman Holdings Ltd - increased by $7 billion in one year

2011 - $0.5 billion
2012 - $7.5 billion


DBD Investors V Holdings, L.L.C. - increased by $1.7 billion this past year.

2011 - $0.45 billion
2012 - $2.2 billion

It looks like the DBD's are doing fine.  Carlyle distributed $6.4 billion to investors for the first three months of 2011.  That means Carlyle took $1.6 billion in carry.  Holdings are up, carry is up, one might expect Carlyle's co-founders' net worth to rise more than $100 million.  Their 2011 pay amounted to $138 million apiece.

Was it too late to include this data in Forbes Billionaire estimator methodology?  Maybe so.

Pennsylvania Public Pension Picks PEUs for $1 Billion

Pensions&Investments reported:

Pennsylvania Public School Employees' Retirement System, Harrisburg, committed up to a total of $975 million to eight funds, spokeswoman Evelyn Tatkovski confirmed in an e-mail.

The $47.9 billion pension system committed up to $200 million each to Apollo European Principal Finance Fund II, Carlyle Energy Mezzanine Opportunities Fund and Cerberus Institutional Partners V; up to $100 million to Partners Group Secondary 2011; up to $75 million each to AG Core Plus Realty Fund III, managed by Angelo Gordon; Exeter Industrial Value Fund II and Bell Institutional Fund IV, and $50 million to Tenaya Capital VI.

The Apollo fund invests principally in non-performing loans (or NPLs) in Europe. Wasn't that MFGlobal's strategy?  Cerberus Institutional Partners V is mentioned in recent SEC filings, however they don't illuminate the purpose of the fund.

A closer look at Carlyle Energy Mezzanine Opportunity Fund reveals it invests primarily in mezzanine debt in energy and power projects and companies in the U.S. and Canada.

The Energy Mezzanine Opportunities team’s core strategy is to pursue privately negotiated debt investments in North America energy and power projects and companies. The team augments its core strategy by seeking investments in dislocated secondary debt markets. The Energy Mezzanine group’s debt investments can take on many forms including second lien debt, senior subordinated debt, senior holding company debt, convertible debt and preferred stock.

Carlyle stands as an energy vulture, waiting for secondary debt to dislocate.  The Carlyle Group knows this, given affiliate Semgroup's and Stallion Oilfield Services' bankruptcies.  PEU boys are quick learners.  I imagine they asked, how can we make big money off our failures?

The team targets investments with the following characteristics: (i) collateralization by hard assets, (ii) appropriate range of leverage profiles (iii) current cash yield, (iv) proven technology, (v) mitigated financial, commodity, and construction risks (if applicable).

Billions in bad energy bets took down Semgroup, while leverage likely killed Stallion Oilfield Services.  Did Carlyle have to explain either story in their sales pitch to Pennsylvania's Public School Employees' Retirement System (PSERS)?  I hope someone did their homework.

PSERS has 20% of investments in private markets, which includes private equity underwriters (PEUs).  This segment returned 9.9% last year, less than real estate and domestic fixed income.  That's a far cry from Carlyle's 30% annual return puffery, frequently mentioned by co-founder David Rubenstein.

Carlyle Adds Investment Banks to Push IPO

Bloomberg reported The Carlyle Group added five investment banks to its original group of three.

Carlyle Group LP (CG), the private equity firm planning an initial public offering this year, added banks including Barclays Plc (BARC), Morgan Stanley (MS) and Deutsche Bank AG (DBK) to help with the sale, said people with knowledge of the matter. 

Bank of America Corp. (BAC) and UBS AG (UBSN) also will work on the offering, said the people, who declined to be identified because the process is private. Carlyle earlier hired JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Credit Suisse Group AG (CSGN) to lead the IPO, according to regulatory filings. 

That's a passel of investment sales forces.  How much will Morgan Stanley board member Erskine Bowles buy in Carlyle stock?  Erskine is looking to make another fortune.  Does he see public shares of Carlyle as the way or is he holding out for public shares in another PEU, one that employs him and his son, Sam?

How about Citi's Peter Orszag?  Will he steer any of his millions in annual salary toward Carlyle's NASDAQ stock?

Who thought eight investment banks would be needed to sell a smidgen of Carlyle's equity?  With the PEU stench of Carlyle's IPO, I wonder if eight is enough.

Update 3-15-12:  The list of IPO underwriters is up to 18. It's a PEU hard sell.

Carlyle Trader Goes Fiction Route

Alex Preston, once global head of trading for the Carlyle Group LP's leveraged finance division, turned novelist.  His villains ooze from the dank corners of the financial and religious world. Bloomberg described Preston's latest novel:

Hedge-fund managers loiter after the church service, hoping to glean tradable tidbits. “Gym-inflated bankers” spill from a pub and slap a passing woman on her bottom.

The Mercedes-driving preacher is also a former banker, though Preston says he drew his voice from the world of politics.

“The priest is based entirely upon Tony Blair,” he says. “I wanted to channel the disappointment of seeing our former prime minister grubbing around on the floor for five-pound notes as he’s doing with his life now. And also that sense of style over substance.”

Now that's the Tony Blair PEU Report knows.

I wonder how Alex Preston would play Carlyle Group stock on NASDAQ post IPO.  Another UK writer penned "Carlyle tries to float above the mistrust."  This is Money missed Carlyle's asset decline from $153 billion to $147 billion, likely due to asset revaluations and huge investor payouts. It did nail the motivation for pushing an IPO:

Analysts suspect the move is as much to do with the age of the co-founders – all are over 60 – and a wish to cash in.

I've long identified the numerous ways Carlyle co-founders cash in   Who will line up at the Carlyle IPO trough?  Will it be women with slappable bottoms, Mercedes driving preachers, or retirees seeking greater returns? 

Whoever buys will need to be prepared to cover the founders' tax liabilities.  It used to be called serf-hood, where people paid for the right to live and work on someone's land.  The modern version has people paying for the right to fund a billionaire's tax liability.  It's Robber Baron worthy and not the least bit fiction. 

PEU Brand LeBron Dunks Pork Donuts in China

NBA star Lebron James has been named brand ambassador for Dunkin' in Asia.  Reuters reported:

James will promote Dunkin' Donuts and Baskin-Robbins through advertising, online media and in-store marketing, as well as personal appearances at certain locations.

Dunkin's CEO said:

"Donuts are a very flexible product. You can do savory donuts, you can do donuts with shredded pork -- that's in China."

Dunkin' Brands is also developing milk tea and bagels with pork floss topping to cater to tastes in China.  A number of private equity underwriters (PEU's) hold large stakes in Dunkin':

Carlyle Group - 22.1 million shares (SEC filing)
Bain Capital - 22.1 million (SEC filing)
FMR - 14.3 million (SEC filing)
Thomas H. Lee - 22.1 million (SEC filing)
Morgan Stanley - 7.77 million (SEC filing)

Pork floss donuts?  Let the PEU register ring.

Dealbook Defends PEU's

Dealbook ran three pieces placing private equity underwriters (PEU's) in a mostly positive light.  The first focused on a three minute video highlighting "good done by private equity."

“This campaign is not about defending a candidate or a particular party, it is solely about setting the record straight and defending against mischaracterizations and political attacks,” Mr. Ken Spain, CEO of the Private Equity Growth Capital Council, said in an e-mailed statement.

One might expect a Dealbook reporter to get an interview, but an e-mail statement is better than nothing..

PEGCC's Ken Spain worked for the National Republican Congressional Committee during the time of Chris Ward, embezzler extraordinaire. He moved on to Quinn Gillespie, which lobbied the White House after Hurricane Katrina on behalf of Tenet Healthcare, whose Memorial Medical Center lost 35 patients.  Oddly, 25 of those died on the LifeCare Unit on Memorial's seventh floor.

The Carlyle Group's LifeCare Hospitals, like Blackstone's Vanguard, is PEU owned.  Spain would need his best flak jacket skills to spin Carlyle's multi-year LifeCare debacle regarding Hurricane Katrina.

Dealbook's second piece looked at The Top Ten PEU deals, promises vs. delivery.  It's a mostly positive story.  I prefer to look at the latest PEU monetization, via SEC filings, given PEU's are notoriously stingy with data/information.  Take Carlyle's planned IPO for Allison Transmission.

Allison Transmission lost 600 jobs, a 17.5% decrease under Carlyle.  Carlyle and company are looking at a triple of their original investment.  A mere 42 stockholders will cash in big, as the 2,800 remaining employees get to be thankful for their job.. 

Dealbook ran a third story on PEU Wilbur Ross, which stated:

The private equity industry, now in its third decade, is filled with a generation of larger-than-life personalities who have achieved enormous financial success and now must decide whether they want their companies to outlast them.

Given this characterization, one might expect a stronger PE story than access to capital for a subsidiary (DMC) of an affiliate (Vanguard).  I commented on Dealbook's Detroit Medical Center story:

When Blackstone's Vanguard purchased Detroit Medical Center, the cost basis for the hospital system changed. Uncle Sam picks up a portion of capital costs through Medicare and Medicaid.

How much of the $850 million will Uncle Sam reimburse prior to Blackstone's flipping of Vanguard?  Surely Charlie Martin has a clue.

With PEU capital comes operating expenses, i.e. management fees. How much is DMC paying Vanguard per year in management fees? One percent of net revenues would be a huge number for this sized healthcare system.

Maybe next time Spain will provide the above information.  It'd make PEU Report happy, however, I've come to expect fluff to puff pieces from private equity.

African Development Bank Puts $50 Million into Carlyle's SSAF

Ghana Business News reported:

The Board of the African Development Bank (AfDB) has approved an equity investment of $50 million into the Carlyle sub-Saharan Africa Fund, a statement from the Bank March 2, 2012 has said.

“The Carlyle Fund will balance our equity portfolio to allow additional investments in riskier market segments,” said Tim Turner, Director, AfDB Private Sector operations.

Two years ago the African Development Bank allocated $50 million to Bob Geldorf's 8 Miles Fund.  Geldorf minimizes the greed side of private equity, as does Carlyle.  The African Development Bank's press release stated:.

AfDB has helped Carlyle establish a fully-fledged environmental and social management system, and a development outcomes tracking system, to monitor job creation, tax revenues and incremental capital flows to portfolio companies.

Africa is the perfect place to make private equity underwriters look like job creators.  Carlyle co-founder David Rubenstein said this in 2010:

"I am very bullish on the prospects for Africa. Nothing compares with Africa in terms of economic growth as a percentage over the next decade, [partly because] it is starting from a low base."

Will the African Development Bank monitor management fees, the impact of greatly increased interest costs on tax payments, and special dividends/distributions, especially those funded by debt?  Will the African Development Bank share their insider information, as Carlyle investors, with the general public?

Who will watch capital flows from portfolio companies?  The African Development Bank is in a unique position to do so with Carlyle and 8 Miles.

AfDB and Carlyle will also jointly launch the “In-the-Board-Room” programme, an audio series targeted at African business students. The programme will provide more than 1,000 African business students with access to messages on inspirational leadership, a sense of strategic command and lessons in crisis management.

I suggest Carlyle start with the following real life examples:

Crisis Management - LifeCare Hospital of New Orleans, August 2005, Hurricane Katrina.  LifeCare's 25 patient deaths warranted not one mention in the Bush Lessons Learned report authored by Frances Townsend.  Crisis management in this case had zero to do with good disaster management.

Strategic Command - Options include SemGroup's bankruptcy, due to $2.4 billion in bad energy bets, or Vought Aircraft's gunking up Boeing Dreamliner production due to "liquidity constraints."

Inspirational Leadership - Choose between Carlyle Capital Corporation's failure and subsequent hand washing or Carlyle's debt cramdown of Brintons' and pension plan dump on the British public.

Let's hope they teach African business students to view the whole picture.  PEU Report is always open to those interested in how Carlyle & company operate.   Carlyle is already in Angolan offshore oil, Nigeria as partner with PENCOM and Mauritius via multiple investment offerings, now up to Carlyle Mauritius III.

Business students, start your research!

Carlyle can dress up portfolio companies as socially responsible, but their IPO filing shows how much greed and control mean to its co-founders.  It's one hell of an adrenaline rush, but hardly inspirational.

Update:  HuffPo reported on Wall Streeters and their adrenaline rushes.

Update 3-7-12:  BusinessDay picked up on this story.  MarketWatch pushed that PEU returns could be north of 40% in Africa.  That helps Carlyle and Bob Geldorf sell their offerings to investors.

Update 3-17-12:  African leaders invited their next round of oppressors by courting private equity underwriters (PEUs).

Ken Mehlman's Next Apology: Greed?

Gay Republican Ken Mehlman apologized for pushing an agenda harmful to his very self as head of the RNC and chair of President George W. Bush's re-election campaign:  HuffPo reported:

"At a personal level, I wish I had spoken out against the effort," said Mehlman referring to the campaign's attempt to draw out the conservative base by attacking same-sex marriage.

Mehlman chose power over principle, at least the kind that integrates self within a larger context. 

"One of the things I’ve learned is how many people were harmed by the campaigns in which I was involved," he continued. "I apologize to them and tell them I am sorry.". 

I expect Ken to offer another apology in the future, given his work for private equity underwriter KKR.   KKR milked HCA for $4.25 billion in distributions before HCA's IPO.  How much did health care costs rise as a result of KKR's purchase of HCA?  How much of the distribution came from public health insurance programs, Medicare and Medicaid?  What amount did Ken Mehlman pocket as Global Head of PEU Public Affairs?

Should Ken find money has the same fleeting allure as political power, another apology should be forthcoming. 

Carlyle's Allison Road

Allison Transmission, an affiliate of The Carlyle Group and Onex Corp., will finally go public.  It's seventh S-1 showed how this pair profited pre-IPO.  Take the annual $3 million management fee over five years, that's $15 million.  Add a $16 million breakup fee, which pushes the total to $31 million.

While there's no evidence of a liquidity recap (debt for dividends) in the filing, Allison's executives have an unusual stake in the firm as corporate debt holders.

As of February 28, 2012, Lawrence Dewey, our Chairman, President and Chief Executive Officer, David Graziosi, our Executive Vice President, Chief Financial Officer and Treasurer, and Robert M. Price, our Vice President, Human Resources, held approximately $33,000, $31,000 and $62,000, respectively, in aggregate principal amount of the 11.0% Senior Notes and Mr. Graziosi held approximately $400,000 in aggregate principal amount of the 7.125% Senior Notes.

Besides holding Allison debt, Mr. Dewey has $550,000 in options from a 2007 SEC filing.

What "hat" does management wear as it executes the following responsibilities?

ATI may from time to time seek to retire Senior Notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, contractual redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. For the years ended December 31, 2011, 2010 and 2009 ATI repurchased $646.0 million, $0.0 million and $26.3 million (at face value) of its Senior Notes, respectively.

Greed overtakes appropriate boundaries, as PEU's make money in byzantine ways.  Are Carlyle, Onex or members of management on the other side of any of Allison's derivatives? 

All twenty subsidiaries are listed outside the United States.

Through 2011, the Company has continued to expand production capacity in its Chennai, India facility for emerging markets and expects to commence production in the second half of 2012.

As for employment under PEU ownership, here's the tape:

At the time of the sale, Allison Transmission employed approximately 3,400 people.

As of December 31, 2011, we had approximately 2,800 employees, with more than 90% of those employees in the U.S.

That's a headcount decrease of 600 or 17.5%. Cue Carlyle co-founder David Rubenstein to say how much worse it would've been without PEU ownership

Allison's IPO is an expected Three Bagger for The Carlyle Group and Onex.  Forty two stockholders will benefit.  That's 42 people in a country of 300 million.  It's the PEU way.

Update 3-13-12:  This Carlyle IPO expects institutional interest.

Update 3-14-12:  Carlyle expects Allison to be a three bagger.