Tuesday, September 25, 2012

USAID Africa Goes PEU

AllAfrica.com reported:

Heirs Holdings today announced that its Chairman, Tony O. Elumelu, C.O.N., has been appointed to the United States Agency for International Development’s (USAID) Private Capital Group for Africa (PCGA) Partners Forum.

The Partners Forum is comprised of several leaders in industry convened to provide expert advice to the US Government on the best strategies for engagement with Africa’s private sector, and to better align its private investment and development goals.

Following the appointment of several prominent US-based members to the Forum including Edward Mathias, Managing Director and Co-Founder of the Carlyle Group, and Thomas Barry, CEO and Founder, Zephyr Capital Management. 

Note how politically connected Carlyle landed another "advisor" spot that positions them to profit handsomely from U.S. subsidized African development.

The PCGA was initiated at USAID to leverage the agency’s and US Government’s resources to accelerate and shape the flow of private capital to critical development areas in Africa.   

Not only do PEU's want to rob Africa of its rich natural resources, they want to flip their stake in African companies.  USAID wants the U.S. people to pad PEU profits.  A few Africans, like those investing in Alper Oil alongside Carlyle, will get very rich.  How the rest fare remains to be seen.

Saturday, September 22, 2012

Baiting PEU Ports Deal with Local Tax Windfall

The Daily Press reported:

Newport News stands to gain $2 million a year in tax revenues, Norfolk would get an extra $14.5 million, and Portsmouth $3.2 million, if port operations in those cities are privatized, according to analysis by state transportation officials.

State transportation officials are virtually alone in predicting local tax windfalls.  The Carlyle Group stated in their conceptual proposal that they'd "pay property taxes, or payment in lieu of taxes, similar to the current revenue stream they (Hampton Roads municipalities) currently receive from the Port Facilities."

Newport News city manager Neil Morgan said the analysis seems to adopt a rosier interpretation of state tax law as far as the city and other port cities are concerned.

Morgan said Newport News had expected that port equipment and real estate currently shielded from taxes would remain so based on an analysis of the deals performed by city officials.
Carlyle's conceptual proposal lacks significant detail on any deal.  The rush to privatize slowed a bit with state officials pushing back the timeline ever so slightly.  A busy holiday season can divert citizens from a potentially contentious issue.  PEU's and their purchased politicians often hide insider deals behind lofty language.

Virginia could privatize its port operations for 48 to 50 years.  What will ships and docks look like in five decades?  What currency will be in use?  How many times will PEU's like Carlyle have flipped Virginia's Port Operations?  At what point will the purchase price be too great and the Port default?

I expect none of these questions are in the state's analysis.  Governor Bob McDonald needs a banner privatization deal to further his career, political and PEU.  Virginia's Ports may be that deal.

Thursday, September 20, 2012

Concordia Kids' Extreme Luck Uneclipsed

The Western sun continues to shine on Matthew Swift and Nicholas Logothesis, founders of the Concordia Summit.  Concordia's upcoming meeting will focus on extremism and how governments can address extremism through public-private partnerships.  Their latest luck came from Middle Eastern outrage over the anti-Prophet movie trailer on the anniversary of 9-11.  It followed landing President George W. Bush, just weeks after conceiving of their summit idea.

The Kids incredible luck continued to the extreme.  A French magazine ran a cartoon of a naked Muhammed.  Next up is an ad campaign that displays Muslim extremists as savages.  It will run in the New York subway, which oddly has its own spate of savages.

Secretary of State Hillary Clinton cited the problem of extremism.   It happens President Bill Clinton is the headline speaker for the extremist oriented Concordia Kids.

One couldn't ask for better public events to drive interest pre-meeting.  The Concordia Summit starts a week from today.  It seems the world conspires toward the Concordia Kids ascendancy.

Update 9-23-12:  The Kids' meeting runs right after the Clinton Global Initiative, which will draw leaders from Egypt and Libya.  Might they stay for the Kids' event?  President Barack Obama and hopeful Mitt Romney will make the pilgrimage to feet of Bill Clinton, who shares a PEU background.  

Update 9-24-12:  Hillary kicked off "Extremist Week" in New York at her husband's Clinton Global Initiative. Iranian President Mahmoud Ahmadinejad did his part at the United Nations.

Wednesday, September 19, 2012

Debt Holders Save Carlyle's LifeCare from Immediate Default

The Carlyle Group twisted LifeCare debt holders' arms enough to get LifeCare Holdings a forty-six day extension to restructure its debt.  The Sacramento Bee picked up the company's press release:
LifeCare Holdings, Inc. (the "Company") has obtained loan waivers from its Senior Secured Lenders and more than a majority of its Senior Subordinated Noteholders.  The waivers, which expire on November 1, 2012, provide the Company additional time to continue discussions with its creditors, potential buyers and other interested parties as it pursues longer−term solutions for its debt structure.

Read more here: http://www.sacbee.com/2012/09/18/4832352/lifecare-holdings-inc-obtains.html#storylink=cpy

This move shows debt holders aren't particularly interested in taking over LifeCare.  Oddly, Carlyle took over Brintons and Mrs. Fields in the same manner it may lose LifeCare. In the Brintons' move Carlyle dumped the pension on the British public.

I'm curious as to how much LifeCare debt Carlyle holds and whether other Carlyle funds have wagers on LifeCare's credit failure?  I hope LifeCare's debt holders understand how much Carlyle co-founder Bill Conway hates a level playing field.

Update 9-22-12:  Conway recently bragged about doing deals at 6% interest.  LifeCare's debt tacked on an extra 2% during the waiver period.

Sunday, September 16, 2012

Luck of the Concordia Kids!

What if two kids, shortly out of college, got the idea to hold a summit on counter-extremism and an ex-President and members of his Homeland Security apparatus showed up?

In the summer of 2011, friends and business partners Nick Logothetis and Matt Swift had an idea for convening a group of thought leaders in the midst of the 10th anniversary of 9/11 to discuss the importance of partnerships in combating extremism

President George W. Bush, Frances Townsend and John Negroponte did just that for Matthew Swift and Nicholas Logothetis, founders of the Concordia Summit.

On September 20th, 2011 the inaugural event of The Concordia Summit convened in New York City to examine the international fight against terrorism and the struggle to combat the breeding of extremist thought.
The cards fell in place for this pair to pull off a high profile meeting of international leaders in a few short months.

What if the next year they land another ex-President and an esteemed Senator, runner up in the last Presidential Campaign?  President Bill Clinton and Senator John McCain will headline the boys' second summit.

What if a movie trailer displaying the Prophet Muhammed in a vile light got widespread play in the Muslim world on the anniversary of 9-11 and incited deadly protests at American embassies?  That would generate huge interest in a counter-extremism summit.

To counter "extremism", one needs large displays of extremism.

I expect the vile video to be a major topic at Concordia.  Which public-private partnership made the mysterious video?  How would the country of origin rate in the yet to be revealed Concordia Index?

What if the summit attracted a Rothschild?

To have the luck of the Concordia Kids, focusing on extremism at just the right time!

Update 9-18-12:  A French satirical magazine will run Prophet cartoons   Go long on the Concordia Kids Index!

Update 11-28-22:  The Concordia Kids are still going.   Their Leadership Council has KKR's David Petraeus, Enlightenment Capital's Jeh Johnson and Fran Townsend, the author of the abysmal Lessons Learned report on Hurricane Katrina.

Saturday, September 15, 2012

Carlyle Re-Sponsors Landmark Aviation

Private Jet Investor reported:

The Carlyle Group has announced that it has agreed to acquire Landmark Aviation from GTCR and Platform Partners.

Equity capital for the transaction will come from Carlyle Partners V, a $13.7 billion buyout fund. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the fourth quarter of 2012. Terms of the transaction were not disclosed.

Here's what Private Jet Investor missed:  Carlyle owned Landmark Aviation from  August 2004 until August 2007.  It sold Landmark, along with Standard Aero to Dubai Aerospace for $1.9 billion.  Dubai Aerospace offloaded Landmark to GTCR for a reported $435 million.  

Reuter's sources suggest GTCR could've gotten as much as $700 million for Landmark.  PEHub said the deal went at $625 million.   That's still a $190 million profit over five years.  That beats Carlyle's profit on their other nightmarish trade, LifeCare Holdings.

Carlyle has until today to make good on an interest payment on LifeCare's debt.  If not, it's default time.

Update 2-14-16:  Carlyle sold Landmark to London based BBA Aviation for $2 billion.

Thursday, September 13, 2012

Carlyle to Retake Rendition Flyer Landmark Aviation?

 AIN Onliine reported:

While current private equity owners GTCR Golder Rauner and Platform Partners have yet to confirm reports that FBO chain Landmark Aviation is for sale, industry sources say that a deal for the services provider is close to being struck.

According to several insiders, the Carlyle Group investment fund manager–which owned the service provider (formerly known as Garrett/Piedmont-Hawthorne/Associated until its rebranding as Landmark) before its 2007 sale to Dubai Aerospace Enterprise (DAE)–will once again acquire the U.S.-based group.
Carlyle's co-founders know how to read tea leaves.  Landmark operates flight based operations at 52 U.S. airports.  FBO's serve private jets owned by Carlyle's billionaire cofounders and their PEU peers.

Rumors had Landmark flying rendition flights for Uncle Sam. Someone released a film trailer trashing the Prophet Muhammed to coincide with the eleventh anniversary of 9-11.  Middle East anger is squarely aimed at U.S. Embassies.  Murderers of U.S. Ambassador to Libya may find themselves on a rendition flight.

Flying Billionaires have meetings to attend, the Carlyle Group investor meeting, the Clinton Global Initiative, the Milken Institute, the World Economic Forum in Davos and the curious Concordia Kids meeting which drew Presidents George W. Bush and Bill Clinton in successive years.  The Kids' partnership to combat extremism got a great shot in the arm from this week's events.

Carlyle and GTCR know there's big money to be made off fear and nightmares. It's scary how Carlyle and GTCR trade nightmarish companies.  Might GTCR get back an underwater (bankrupt) LifeCare Hospitals

Tuesday, September 11, 2012

Carlyle's Investor Conference Sans LifeCare

WaPo reported:

The Carlyle Group is gearing up its annual investor conference in downtown Washington this week on the heels of a buying binge that constitutes a big bet on the U.S. manufacturing sector.

The investors gathering at the meeting represent the pension funds, foundations, universities, sovereign wealth funds and rich people who give Carlyle their money in hopes of making more with it.
Carlyle's marketing scheme had co-founder David Rubenstein bragging of 30% annual returns on equity investment.

Fellow co-founder William Conway believes Carlyle has a unique, refreshing story to tell at their annual investor meeting.  Part of that story is the U.S. is a great place to invest. 

“We track that growth through data in our portfolio companies, which helps us make smart new investments and best manage current investments,” said Conway, a data hound who scrounges through obscure metrics in search of “ahas.”

“We, in some ways, have better data than economists and some government people. That data tells us things like cargo-shipping rates, leisure-car rentals from Hertz and commercial building-supply sales." 
He bragged about cheap debt for corporate buyouts:

“The last six deals we’ve done, the average cost of borrowing was 6 percent,” said the former chief financial officer of MCI Communications. “That may sound like a lot, but when I was CFO of MCI in the early 1980s, we were paying 15 percent for debt.”

Conway's enthusiasm is in contrast to his former pessimism on the U.S. and his love for China

Conway said the United States continues to have the strongest, deepest and most flexible financial markets in the world, which also makes it a magnet for investment and creates the climate for growth.

“The U.S. is still the center of technological innovation. We have the best university system in the world. The best hospital system in the world. Best medical labs. I like the U.S. for all those reasons.”
Somehow WaPo missed the current state of Carlyle's hospital company, LifeCare Holdings. Carlyle's LifeCare skipped their debt interest payment, due on August 15.  They have four days left to make good, before going into default.

Oddly, LifeCare's interest rates are at Conway's MCI levels, according to Deal Pipeline:

There was $316.8 million of its first-lien loan outstanding as of March 31, filings with the Securities and Exchange Commission said, and the weighted average interest rate on it was 13.83%.
Will Carlyle let LifeCare implode like Carlyle Capital Corporation, BlueWave Partners, SemGroup, Oriental Trading, Hawaiian Telecom, Edscha, IMO Carwash, Willcom, Verari, Stallion Oilfield Services and Church Street Management?  Or is Carlyle using Rothschild's to strong arm its lenders?

For Carlyle it is the best of times.  It was the worst of times for 25 patients in LifeCare's unit in Memorial Medical Center during Hurricane Katrina.  D.C. caters to the Carlyle's.  It should be one heck of an investors meeting.  The PEU stories they'll tell.

P.S.  Unit holders are not invited.  The impact of PE-Ubiquitousness can be seen in America's growing income gap

Sunday, September 9, 2012

Carlyle Group's Virginia Incursion to Extend to Beach?

The Carlyle Group's PEU brigade overran coal-fired power plants in Portsmouth and Hopewell.  They have their beady eyes on Virginia's port operations.  Will they continue their march to the coast? 

The Cavalier Hotel, a prime Virginia Beach property, is up for grabs.  Gene Dixon, Jr. lost a family lawsuit and his business empire will be dismantled.  The story of Gene Dixon, Sr.'s purchase of the Cavalier Hotel is Farmville legend.  After being refused a stay for his plain dress, Gene Sr. bought the Cavalier Hotel.

Gene Jr. plans to appeal the court decision so Carlyle might have time to consider a bid for the Cavalier.  However, Carlyle's going full press for Virginia's ports.

By Oct. 15, the state intends to announce which proposal is preferred or whether VIT should remain in control. They expect to sign a deal by the end of the year, essentially rushing to finalize an agreement before legislators return to Richmond and intervene.

Virginia's privatization scheme ensures difficulty in making apples to apples comparisons.  There is no RFP for interested firms to respond to in making their offers.  This opens the door for political influence in selecting a private partner for the state's public assets. 

Virginia inked a deal with GEICO to sponsor its rest areas for "safe cell phone use."  Never mind that most people stop in rest areas to relieve themselves.  Will people see or hear GEICO adds while going to the bathroom?

Virginia's other public-private partnership will build HOV lanes on I-95 in Northern Virginia.  The federal government will provide $300 million in financing through TIFIA so 95 Express Lanes can make $5-6 per rush hour commute. 

Circling around, federal TIFIA money can be used for ports.  How might Carlyle lever TIFIA funds in its run on Virginia ports?

Today's TIFIA Interest Rate 2.74% for a 35-year loan as of Thursday, September 6, 2012

PEU's love government funds and state-provided, tax-exempt franchises from Virginia's "mountains, to the prairies, to the oceans, white with foam..."

Update 9-10-12:  Daily Press reported the state hired four consulting firms to help analyze and sell the deal.   They include KPMG, Drewry Maritime Advisors, PFM, Rubin Communications, Powell Tate and an Old Dominion University economist.  I'm not sure what poly-consultancy will add to Virginia's cluster PPP.

Friday, September 7, 2012

Bluest of Blue Loves PEU's

President Bill Clinton defended private equity underwriters (PEU's) on Bloomberg TV.  Note the interviewer never broached Clinton's prior role with Ron Burkle's Yucaipa Funds.  Clinton does mention his good friend in the "equity business."  That friend paid Clinton big money to advise Yucaipa. 

Clinton's IRS turned its head on PEU's waving their wand, turning investment fees into carried interest.  Rising Democratic star Corey Booker believes in PEU's, as well.  Red and Blue love PEU's, especially the titular head of the Democratic Party.

With all the talk about a clear choice in this Presidential campaign, the competition is for the right to spend trillions in federal money in ways that benefits friends and supporters.  It's also about hegemony.

PEU's boys win either way.

Wednesday, September 5, 2012

Carlyle to Jump Start Dividend, RAC's Debt

Reuters reported:

Private equity firm Carlyle Group wants to pay itself a dividend from its UK roadside rescue business RAC a year after buying it, as the company's performance improves on the back of cost cuts, banking sources said on Tuesday.
Carlyle's dividend would come from RAC's adding debt to its balance sheet. This move is aided by improved EBDITA.

Carlyle's attempts to take cash out of RAC could be done either by refinancing RAC's total debt and taking a payment with the extra proceeds raised or by adding on a new tranche of debt for the sole purpose of taking it as a dividend payment.
As for "cost cuts" enabling the move, they came on the back of workers.  Carlyle didn't take on RAC's pension when it paid Aviva £1.0 billion for the firm.  Carlyle put up £380 million in equity and borrowed £620 million.

Reuters stated Carlyle would go from 3.5 EBDITA to total debt to around 5 under the dividend recapitalization.  This would have Carlyle pulling £170 million in cash out of RAC.  That's nearly half of Carlyle's original investment.

Pensionless RAC workers helped Carlyle achieve a 45% return within a year.  They may wish to talk to their Brintons counterparts.  Debt funded dividends may entice public unit holders.  Borrowing from Peter to pay Paul.  That's one element of a Ponzi scheme.

Update 10-4-12:  Carlyle's RAC debt for dividend is bigger at  £260 million.   Carlyle will increase the interest rate on RAC's debt to facilitate the money bleed.

Update 10-28-15:  Carlyle reportedly has a $1 billion bid for RAC from CVC

Monday, September 3, 2012

PEU's Tax Dodge: No Operating Income

Private Equity Underwriters (PEU's) turned operational management fees into carried interest, i.e. capital gains, so they could be taxed a lower rate.  NYTimes reported:

The IRS has known that private equity funds have been doing this for 20 years.
Twenty years ago President Clinton was elected to his first term.  Clinton later appointed Charles Rossott as IRS Commissioner.  In 2003 Charles Rossotti became a Senior Advisor for The Carlyle Group.

PEU's took investor management fees and rolled them into investment fund.  Articles are silent on management fees PEU's charge affiliates. 

Under scrutiny for this practice are:

Kohlberg Kravis Roberts & Co., TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners, Bain Capital, Clayton, Dubilier & Rice; Crestview Partners; HIG Capital; Vestar Capital Partners; and Providence Equity Partners.
KKR has ex-RNC Chair Ken Mehlman, while Apollo Global employs Senator Evan Bayh.  Presidential hopeful Mitt Romney founded Bain Capital, while the Obama White House regularly hosted Silver Lake's Glenn Hutchins, who knows the place having worked in the Clinton White House.

Carlyle Group Sinks LifeCare?

Nearly seven years after purchasing LifeCare Hospitals, The Carlyle Group indicated the hospital company may not be worth saving.  Carlyle's long term ownership may well be toxic:

Pending finalization of a strategy to deal with our debt structure, we have determined that it will be in the Company’s best interest not to pay the next interest payment due on August 15, 2012 under our senior subordinated notes in the amount of $5.5 million. The failure to make this payment will not constitute an event of default under the indenture governing the senior subordinated notes until the expiration of the 30-day payment grace period on September 14, 2012. The failure to make the senior subordinated notes interest payment prior to the end of such grace period would result in an event of default under our senior secured credit facility. The occurrence of an event of default under these agreements could permit the holders to accelerate such indebtedness.

As a consequence of our decision to take advantage of the grace period under the senior subordinated notes indenture, we currently do not meet the conditions to drawing under our revolving credit facility should we have any availability thereunder. Nonetheless, we have a cash balance in excess of $25.0 million as of the date hereof. This amount, together with cash from operating activities, is sufficient to meet our obligations arising in the ordinary course of business, absent an acceleration of our indebtedness due to an event of default as discussed herein.
Carlyle purchased LifeCare on August 11, 2005, just weeks before Hurricane Katrina sideswiped New Orleans.  LifeCare had 25 patients die in their unit within Memorial Medical Center.  Oddly, the hospital with the highest death toll warranted not one mention in the Bush White House Lessons Learned Report, authored by Frances Townsend.  As an administrator who endured in a Southwest Virginia flooded hospital and evacuated a Texas Gulf Coast hospital before a record hurricane, I found the Bush omission disturbing

What could sink LifeCare in September 2012?  It looks like a combination of events.  The first is LifeCare's burgeoning debt load and interest payments. Carlyle loaded LifeCare up with $400 million in debt upon purchase, then grew the debt to $465 million in Q2 2012.

LifeCare was virtually debt free before Carlyle, paying a mere $649,000 in interest expense in pre-PEU 2005 .  LifeCare's interest expense for 2012 is a projected $70 million, given interest expense of $35 million for the first six months.  S&P rated LifeCare a "B" in 2006, lowering it to "D" recently.

Note how Carlyle fails to claim responsibility for putting LifeCare in a precarious position:

Given our current capital structure and operating cash flows, it is unlikely that we will be able to refinance, purchase or defease the senior subordinated notes by May 15, 2013. As a result, our senior secured credit facility and revolving credit facility are reflected as current liabilities as of June 30, 2012. Additionally, an event of default will occur under the indenture governing the senior subordinated notes in the event the senior secured term loan credit facility maturity is accelerated. Accordingly, we have also classified the senior subordinated notes as a current liability as of June 30, 2012. In light of these circumstances, on May 8, 2012, we engaged Rothschild, Inc. as a financial advisor to assist us in evaluating strategic alternatives for our capital structure as it relates to the pending maturity of our senior subordinated notes and the potential accelerated maturity of our senior secured term loan.
Carlyle makes money directly off LifeCare via management fees and refinancing charges.  It can also profit by betting on the company's debt.  Carlyle funds investing in the credit market are not required to publicly disclose their holdings.  How many trade LifeCare's Level 2 debt?

LifeCare's Senior Secured Credit Facility and the Senior Subordinated Notes are traded in private institutional markets. The carrying amounts of the Senior Secured Credit Facility and the Senior Subordinated Notes were $320.5 million and $119.3 million, respectively, at June 30, 2012. Using available quoted market prices, the fair values of the Senior Secured Credit Facility and the Senior Subordinated Notes were approximately $294.8 million and $62.6 million, respectively, at June 30 2012. 
The market considered LifeCare's Subordinated Notes junk, prior to missing the interest payment.  It valued the debt at 52 cents on the dollar.

While Rothschild strong armed creditors, Carlyle continued the big money boy game.  LifeCare spread a quick $100,000 around to its new Chief Operating Officer before missing their interest payment 

Sign On Bonus. LifeCare will pay a $100,000 sign-on bonus on the later of July 1, 2012, or the date that Employee completes ten days of employment under this Agreement. 
Ten days of work for $100,000?  That's the PEU way.  Greed will be the death of healthcare.

Saturday, September 1, 2012

Private Equity Sharks

TIME designated Summer 2001 in honor of the Shark.  Private equity underwriters (PEU's) managed $750 billion in assets at the end of 2001.

For the last decade PEU sharks hunted for companies.  By 2007 they were in a full-out feeding frenzy.  At the end of 2011 PEU's had $3 trillion in assets under management.

That's 300% growth in AUM over a decade, which means more financial sharks are in the water.  2012 is the Year of Dividend Bleeding for PEU Chums.
Any Sheriffs hunting PEU sharks are "gonna need a bigger boat." It seems one may be up for the task.

Summer of Liquidity Recaps in Year of PEU Dividends

The Deal reported:

With so many big recaps in the mix, 2012 has been the year of the dividend for PE firms. Consider that as of Aug. 10 Standard & Poor's Leveraged Commentary & Data has tracked $13 billion of dividends financed with leveraged loans, versus $18 billion of equity invested in new leveraged buyouts. That means that sponsors collectively have withdrawn 72 cents of dividends for every dollar of fresh capital they've invested in a new LBO (again, this is for deals backed by leveraged loans). Said another way, 43% of PE capital flow has been out of issuers via dividends -- surpassing the prior high of 33%, from 2010.
Private equity Underwriter (PEU) driven liquidlty recaps are like home equity loans, where proceeds go into the owner's pocket and not into improvements.

There have been 52 dividend deals alone so far this year through which PE firms have extracted 60% of their original capital commitment, on average.
Every time interest expense goes up, how many jobs are eliminated?  It's but one strategy in the PEU monetization game.

Update 9-4-12:  The Carlyle Group wants a liquidity recap for RAC, a British roadside assistance company.  Carlyle took over RAC sans pension. It looks like Carlyle wants to pull $300 million from RAC via a special dividend, debt funded.